10-K 1 biomoda10k123111.htm biomoda10k123111.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-K
 
 
x  
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: December 31, 2011

¨  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file No. 333-90738
 
BIOMODA, INC.
(Exact name of registrant as specified in its charter)
 
NEW MEXICO
85-0392345
(State of incorporation)
(IRS Employer Identification No.)

609 Broadway NE, Albuquerque, New Mexico 87102
(Address of principal executive offices including zip code)
 
Issuer’s telephone number, including area code: (505) 821-0875
 
Securities registered under Section 12(b) of the Exchange Act: 
None
Securities registered under Section 12(g) of the Exchange Act: 
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o   No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o   No  x

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o   No  x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
  
 Accelerated filer
¨
Non-accelerated filer
¨
  
 Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  o   No  x
 
The aggregate market value of the voting stock held by non-affiliates as of December 31, 2011, based upon the closing price of the registrant’s common stock on that date was $1,337,052.

The number of issuer’s shares of Common Stock outstanding as of April 18, 2012, was 175,863,963 shares.
 
 
Table of Contents
 
   
Page
Forward Looking Statements
  
PART I
     
Item 1.
4
Item 1A.
12
Item 2.
13
Item 3.
13
Item 4.
13
     
PART II
     
Item 5
14
Item 6.
15
Item 7.
15
Item 8.
20
Item 9.
50
Item 9A.
50
Item 9B.
51
     
     
PART III
     
Item 10.
52
Item 11.
53
Item 12.
55
Item 13.
56
Item 14.
56
Item 15.
57
     
58
 

 
 
Forward - Looking Statements

This Form 10-K contains forward-looking statements about the business, financial condition and prospects of the Company that reflect assumptions made by management and management’s beliefs based on information currently available to it. The Company can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management’s assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, the Company’s actual results may differ materially from those indicated by the forward-looking statements.

The key factors that are not within the Company’s control and that may have a direct bearing on operating results include, but are not limited to, the acceptance by customers of the Company’s products, the Company’s ability to develop new products cost-effectively, the ability of the Company to raise capital in the future, the development by competitors of products using improved or alternative technology, the retention of key employees, and general economic conditions.

There may be other risks and circumstances that management is unable to predict. When used in this Form 10-K, words such as “believes,” “expects,” “intends,” “plans,” “anticipates,” “estimates” and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. All forward-looking statements are intended to be covered by the safe harbor created by Section 21E of the Securities Exchange Act of 1934.
 
 
 
PART I

ITEM 1. BUSINESS

General

Biomoda, Inc. (“Biomoda”) is a development stage company incorporated in the state of New Mexico on January 3, 1990 (inception). Biomoda is hereafter referred to as the “Company.”

The Company has laboratories and offices at 609 Broadway NE, in Albuquerque, New Mexico, that are used for corporate operations and research and development activities. The mailing address is 609 Broadway NE, Albuquerque, NM 87102. The telephone number is (505) 821-0875.  Our website is www.biomoda.com.

On January 8, 2010, the Company dissolved Biomoda Holdings, Inc., a Nevada corporation incorporated August 12, 2003, as no longer necessary or useful for operations.

The Company

Biomoda is an in-vitro diagnostics company that develops assays, or tests, to detect cancer. These assays are performed in clinical reference laboratories using body-fluid samples. The technology is based on scientific work originally done at Los Alamos National Laboratory. Biomoda was issued a patent in January 2005, and has received a Divisional and a Continuation-In-Part (“CIP”) extension of that owned patent. The technology is based on a porphyrin molecule that has an affinity to bind with cancer cells in high concentrations and cause them to fluoresce under specific frequencies of light. The porphyrin molecule is easy to obtain, manufacture and use. This is a broad-based technology that works with a variety of cancers.

The Company is developing a product line of assays for a variety of cancers based on adaptations of this technology. While we believe the technology has great potential as a cancer screening tool for large populations, the true breakthrough may be its potential as a non-invasive diagnostic for multiple cancers.

Our first product, trademarked under the name CyPath®, is an assay for the detection of early-stage lung cancer. Lung cancer represents a large market with unmet diagnostic needs. The five-year survival rates for lung cancer are dismal, due in large part to the fact that this disease is typically diagnosed late in its progression. Our lung cancer assay tests deep-lung sputum which is collected from the patient, processed and incubated in the CyPath® molecular marker labeling solution, and then scored for cancer cells. This technology has the potential to diagnose other cancers as well. Biomoda has identified breast, circulating tumor cells (CTC), cervical, bladder, colorectal, oral, and prostate cancers as potentially significant business opportunities for the Company.

Market Need

According to the Centers for Disease Control, cancer is a leading cause of death in the United States, second only to heart disease. In 2010, nearly 600,000 Americans and more than 7 million people around the world lost their lives to cancer. In the United States, one in three women and one in two men will develop cancer during their lifetime. A quarter of all American deaths and about 15 percent of all deaths worldwide will be attributed to cancer. In some nations, cancer will surpass heart disease to become the most common cause of death.

Lung cancer claims more lives than the next four biggest cancers – colon, breast, prostate and pancreatic – combined. Survivability of lung cancer is extremely low.  Only 40 percent of patients diagnosed with lung cancer survive one year after being diagnosed. The five-year survival rate for lung cancer is a dismal 15 percent while five-year survival rates for breast and prostate cancer have improved to 87 percent and 99 percent, respectively, primarily due to early detection. Early-stage diagnosis for lung cancer will improve the survivability of the disease.
 
 
 
World of Medicine

Technological advances are shifting medicine to an individualized approach to treatment of disease. Personalized Disease Management is an overall direction being adopted within the medical community to address risk assessment, diagnosis, treatment and individual response to therapies. Biomoda’s technology will enhance this new paradigm in medicine with improvements in early-stage diagnosis based on risk stratification.

Within Personalized Disease Management, our CyPath® assay has the potential for widespread adoption by the medical community for the screening, diagnosis, monitoring and surveillance of cancers. The global market for an inexpensive, non-invasive, and accurate screening and diagnostic tool for early cancer diagnosis is largely unmet. Biomoda anticipates that our technology will also be used to monitor treatment and gauge patient responses to the efficacies of various therapies.
 
Business Model

The Company’s end customers are patients who should be screened for a cancer diagnosis based on their risk profile, whether they present with symptoms or not, and doctors that prescribe screening and diagnostic tests. The Company plans to develop assays for the screening and detection of multiple cancers including lung, breast, cervical, CTC, bladder, colorectal, oral and prostate cancers. Patient samples would be delivered to Biomoda clinical reference laboratories certified under the federal Clinical Laboratory Improvement Amendments (“CLIA”). Company laboratories will receive the sample, perform the assay, and deliver the test result to the physician who can then inform the patient of the diagnostic conclusion. Our business model utilizes Company central laboratories to perform testing to maximize profits and minimize risk to our intellectual property (“IP”) and patents.  As sales and revenues grow, Biomoda may seek a strategic partnership with national and international clinical laboratories to leverage each entity’s operations and expand Company sales and services.

Biomoda’s future clinical reference laboratories will seek reimbursement from Medicare/Medicaid and private insurers based on existing reimbursement codes. Biomoda performed a reimbursement code study in 2003, and determined that current codes exist and are economically feasible under Centers for Medicare & Medicaid Services (“CMS”) codes.  The CMS is a Federal agency within the U.S. Department of Health and Human Services.

Initial sales and revenues forecasts are based on development of an internal sales and manufacturing workforce that will take advantage of public monies available for economic development and job creation. This business model anticipates greater revenues than would be obtained through contract sales and manufacturing and provides for non-dilutive funding during the Company’s research and development phase when risks are greater.

Customers

Sales will be driven by physician referrals. Our initial marketing strategy is focused on creating a high profit margin on a relatively low-cost product that will benefit Biomoda and its strategic laboratory partners. This model offers significant economic incentives for our customers and partners to adopt the Biomoda technology.
 
 
The Company is establishing visibility and credibility within the medical community by actively raising awareness of our CyPath® assay. Biomoda has begun coordinated scientific collaborations and will follow completion of clinical testing by publishing results in research and clinical journals and presenting our findings at medical conferences. Biomoda is currently working with Christiana Care Health Services in Newark, Delaware, Waterbury Pulmonary Associates in Waterbury, Connecticut, Radiology Associates of Albuquerque in Albuquerque, New Mexico, the University of Texas Health Science Center at San Antonio in San Antonio, Texas, and the Saccomanno Research Institute at St. Mary’s Hospital and Medical Center in Grand Junction, Colorado. The Company hopes to engage in collaborations and collaborative studies with preeminent lung cancer researchers throughout the world. In 2011, Biomoda joined the Early Detection Research Network, an initiative of the National Cancer Institute at the National Institutes of Health, which provides an opportunity to collaborate with other researchers focused on the development of molecular technologies for the screening, early diagnosis and target-based treatment of cancer.

The Company will use detailing agents (specialized sales agents) to provide direct marketing efforts to physicians.

The Company’s proprietary Intellectual Property will be protected by using Biomoda clinical laboratories and through active, licensed-based strategic partnerships with national and international reference laboratories with emphasis on identifying laboratory partners that have business relationships with provider networks. This will enable us to develop strategic relationships with customer groups who have formal relationships with those who drive sales.

Competition

There is no commercial early lung cancer diagnostic on the market today.  In November, 2011, the National Comprehensive Cancer Network (NCCN) issued guidelines for use of low-dose spiral computed tomography (LDCT) to screen for lung cancer in high-risk individuals.  LDCT can be expensive, exposes patients to radioactivity, and can have a false-positive rate of greater than 96% for a single imaging.  Screening must be done as part of a series and with other diagnostic procedures to improve accuracy.  A high false-positive rate can lead to emotional and financial costs associated with false positive results and increases the physical harm to high-risk individuals from surgical resection of benign lesions.  LDCT also is the first step in diagnosis of lung cancer. A more accurate, less costly and less invasive diagnostic is needed to detect lung cancer in the early stages of the disease.

Competition falls into several segments: biomarkers, radiology, genomics, proteomics and methylation. The Company anticipates that CyPath® will be a complement to diagnostic tools described below as well as a stand-alone diagnostic. Biomoda products should be well positioned to work synergistically with new products entering the marketplace.

Biomarkers are used to indirectly identify cellular aberrations and disease. Biomoda’s pilot clinical trial demonstrated that CyPath® is a significant new biomarker for lung cancer. The Company is monitoring the activity of other companies in this space, and we believe our technology offers inherent commercial advantages over other products. CyPath® is cheaper to make, more stable, and simpler to use in the commercial laboratory environment.

Radiology technology including low-dose spiral computed tomography (LDCT), recently received medical attention as the recommended screening tool for individuals at high risk for lung cancer.  Studies reveal a very high (up to 97%) false positive rate in single imaging.  The high false positive rates in detecting lung cancer in heavy smokers using LDCT confirms a need for a simple, non-invasive and inexpensive testing method used in conjunction with LDCT to minimize emotional and financial costs associated with false positive results and lessen physical harm from surgical resection of benign lesions.

Genomics, proteomics and methylation are leading-edge science.  Researchers have recently announced advancement in these technologies and anticipation that diagnostic tests may be available for commercialization with five years. Biomoda believes genomic, proteomic and methylation technologies will be used most often to define an individual’s risk profile for contracting cancer and may work as tools to determine which patients can benefit from Biomoda’s diagnostic technology. Accurate risk stratification is a critical component of any effective screening protocol, and advances in genomics and proteomics are expected to greatly enhance this capability.
 
CyPath® will be a stand-alone early-stage diagnostic tool as well as a complementary product to diagnostic tools currently used to detect cancer. Its clear advantage over current diagnostics is the non-invasive collection of body fluids to retrieve adequate cells for incubation in the CyPath® labeling solution. CyPath® is a front-end diagnostic and screening tool and an aid in determining whether or not more expensive and specialized tests are warranted. Our product can be highly valuable to physicians by optimizing and expanding current medical practices by offering a simple, non-invasive diagnostic test to detect cancer.
 
 
Patents
 
Biomoda’s U.S. Patent portfolio includes:
·  
U.S. Patent 6,838,248, titled “Compositions and Methods for Detecting Pre-Cancerous Conditions in Cell and Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine” which was issued on January 4, 2005; 
 
·  
U.S. Patent 7,384,764, titled “Method for Prognosing Response to Cancer Therapy with 5,10,15,20-Tetrakis (Carboxyphenyl) Porphine” which was issued June 10, 2008 and its Continuation-in-Part patent with the same name, 7,960,138 issued June 14, 2011;
 
·  
U.S. Patent 7,670,799 titled “Method for Making 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine (TCPP) Solution and Composition Comprising TCPP” which was issued on March 2, 2010;
 
·  
Allowed U.S Patent Application 12/715,627 titled “Method for Detecting and Prognosing Pre-Cancerous cells with 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine” filed March 2, 2010; and

·  
Pending U.S. Patent Application 12/839,283 titled “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” which provides a quantitative method for reading tissue samples for signs of malignant cells based on flow cytometry and dark-field microscopy which was filed on July 19, 2010;

On November 2, 2011, we filed an application for a new U.S. Patent. The Utility Patent describes systems and methods for an innovative stable, narrow-band light source to excite fluorophores such as TCPP. This narrow-band fluorophore exciter will increase the accuracy, sensitivity and specificity of the CyPath® diagnostic assay for lung cancer in both epifluorescent microscopy and flow cytometry.

On March 15, 2011, the Canadian Intellectual Property Office awarded Biomoda Canadian patent 2,429,526 entitled "Compositions and Methods for Detecting Precancerous Conditions in Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine." This patent is similar to the U.S. Patent awarded in 2005.  
 
On June 20, 2011, the Japan Patent Office granted Patent Application No. 2008-266490, “Compositions and Methods for Detecting Pre-Cancerous Conditions In Cell And Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenol) Porphine,” which is similar to Biomoda’s U.S. patent 6,838,248.
 
In January 2012, the European Patent Office (“EPO”) granted Biomoda’s patent application for using the proprietary CyPath® technology to detect cancer and pre-cancerous cells in body fluid and tissue samples. Titled “Composition and Methods for Detecting Pre-Cancerous Conditions In Cell And Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenol) Porphine,” EPO patent 1364044 is similar to Biomoda’s U.S. patent 6,838,248, which was issued in 2005. Foreign equivalents are now effective in Canada, Mexico, Japan, Australia and Europe.
 
Biomoda filed Patent Cooperation Treaty (“PCT”) Application PCT/US10/42482 titled “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” on July 19, 2010. The PCT process provides a standard patent application for the countries that are signatories to the treaty.

Biomoda owns U.S. registrations for the marks CyPath®, CyDx® and “Biomoda.” The Company has also received registrations for the marks Biomoda®, CyPath® and CyDx® in the European Union, and the World Intellectual Property Organization has registered “Biomoda” as a world trademark as of November 10, 2010.
 
Suppliers

The Company has identified several suppliers for all key components of our lung cancer diagnostic assay that can provide sufficient quantities for commercialization of the assay. Discussions continue with these suppliers based on the current stage of our development.

Research and Development Activities

Biomoda’s research is undertaken in collaboration with universities, scientists, research institutions, and medical facilities domestically. The Company is working toward further research and clinical trials which Biomoda anticipates will expand upon current and future collaborations. Biomoda’s diagnostic test can be used for other tissue and body fluid samples, and Biomoda intends to create and market products to diagnose and screen for other prevalent cancers, including breast, cervical, CTC, bladder, oral, colorectal and prostate. Toward that end, Biomoda anticipates developing protocols and assembling a study team for feasibility studies on the use of CyPath® to address other cancers.
 
 
The Company plans to complete internal optimization studies prior to launching the pivotal clinical study to enhance the commercial utility of the CyPath® diagnostic assay. This research and development (“R&D”) includes automation of sample reading, improving methods for the non-invasive collection of sputum samples, advancing understanding and application of fluorescent microscopy in relation to its ability to identify cancer cells, and developing strategies to enter the European market, including filing for approval of a CE mark. Optimizing the assay and automating the process for reading CyPath®-labeled cells will lead to lower cost and greater accuracy in a high-throughput clinical setting. This research will be supported by cooperative agreements between the Company and major medical and scientific research institutions with the assistance of medical and scientific experts on our research team.
 
Employees

As of December 31, 2011, the Company had four full-time employees. Biomoda has contracts for services on various projects on an ongoing or as-needed basis.
 
Maria Zannes is Chief Executive Officer and Chairman of the Board. Ms. Zannes has more than 30 years of management experience in business and industry. After serving as President of the Energy Recovery Council, a national waste-to-energy trade group in Washington, D.C., for 10 years, Ms. Zannes began a consulting practice for private clients in the medical, environmental and energy industries. She is a research associate with Columbia University Earth Engineering Center and co-founder of two research centers at Columbia. Ms. Zannes is a director and founder of American Homecoming Foundation, a non-profit organization directed at helping homeless veterans. Previously, she worked as General Manager for ECOS Corporation, a subsidiary of Burlington Environmental, and Project Manager for Wheelabrator Technologies, Inc., a subsidiary of Waste Management. Ms. Zannes began her career as a journalist before joining the office of Congressman Charles Wilson (D-Texas) as legislative aide and press secretary. Ms. Zannes is licensed to practice law in New Mexico and is an inactive member of the Washington State Bar Association. 

John J. Cousins is President, Treasurer, CFO, Controller and Director. Mr. Cousins holds undergraduate degrees from Boston University and the Lowell Institute School at the Massachusetts Institute of Technology and earned an MBA from the Wharton School, University of Pennsylvania. He began his business career as a design engineer for Ampex Corporation, a manufacturer of broadcast and computer equipment, and the American Broadcasting Company television network. He was named vice president of Cimarron Business Development Corporation, a southwest regional merchant and investment banking operation in 1990. In 1996, Mr. Cousins became president of Terra Firm, a business consulting firm. Mr. Cousins is a Director of American Homecoming Foundation, a non-profit organization created to help homeless veterans. Mr. Cousins is also a Director and Vice President of New Mexico Biotechnology and Biomedical Association (NMBio), an affiliate of the national Biotechnology Industry Organization. Mr. Cousins has been President, Treasurer, Controller and a Director of Biomoda since 2002.
  
Timothy Peter Zannes is Vice President and General Legal Counsel and Corporate Secretary. Mr. Zannes holds a law degree from the University of New Mexico, is a member in good standing of the New Mexico Bar and contributes 19 years experience as a lawyer.
 
Verrity Gershin is Office Manager. Ms. Gershin graduated from the University of New Mexico with a B.U.S. degree in May 2008. With 12 years experience in accounting, corporate filings and corporate administrative support, Ms. Gershin assisted with the Company’s initial public offering and helps maintain regulatory compliance.
 
 
Board of Directors

Maria Zannes, Chairman.

John J. Cousins, Director.

David Lambros is a Director. Mr. Lambros was the elected law director of Brook Park, Ohio, and presently serves as the law director of the Village of Valley View and the Village of Kelley’s Island, Ohio. As law director, he serves as the chief legal counsel to cities negotiating with corporations and business, and is an expert in municipal law. Mr. Lambros has practiced law for more than 25 years and served on various boards, including Commerce Exchange Bank and Southwest General Hospital. He presently is a director on the Systems Board at Southwest General Hospital, a multi-million dollar company.

Lewis White is a Director. Mr. White is a major shareholder of Biomoda and serves as director and CEO of New Energies Nebraska, LLC, a subsidiary of Standard Alcohol Company. He has also been a real estate investor, principal of a food services business catering to niche markets and an employee of the State of Nebraska. Mr. White attended the University of Nebraska at Omaha where he majored in Business Administration.
 
Contracts

The Company has contracted with Medi-Pharm Consulting, LLC, of New York, New York, for strategic business development and growth services.  Medi-Pharm Consulting is a strategic business company whose team consists of the experienced and respected professionals in the healthcare industry who together represent more than 100 years of experience involving pharmaceuticals, biotechnology, healthcare services and technology, medical devices and equipment.  Medi-Pharm will assist the Company with strategic partnerships and positioning for investment and growth.

The Company has contracted with Gordon Bennett of Albuquerque, New Mexico, for fluorescent microscopy services. Mr. Bennett has a B.S. in Physics as well as a J.D. from the University of New Mexico. His background is in photonics and electronics. He has been adjunct faculty at the College of Santa Fe and has held the Chair in Photonics and Biophotonics at Central New Mexico Community College. He is currently a member of the Optical Society of America and the New Mexico State Bar.

The Company has contracted with Christiana Care Health Services of Newark, Delaware, for the services of Thomas L. Bauer, MD, thoracic surgeon and cancer researcher, to be the national Principal Investigator (“PI”) overseeing the Biomoda clinical studies for early lung cancer detection. Dr. Bauer has led several lung and esophageal cancer studies. Dr. Bauer partners with Dr. Lara Patriquin, a diagnostic radiologist in Albuquerque, who is serving as the local PI for the Company’s clinical studies.

The Company has contracted with Quintiles Consulting in Rockville, Maryland, for regulatory consulting and the design of clinical studies of Biomoda’s proprietary test for detection of early-stage lung cancer. Quintiles Consulting (www.quintiles.com) is the regulatory consulting unit of Quintiles Transnational Corp., a global corporation that provides a broad range of professional services in product development, financial partnering and commercialization for the pharmaceutical, biotechnology and medical device industries.
 
 
The Company has contracted with Regulatory & Clinical Research Institute (“RCRI”), Inc. in Minneapolis, Minnesota, to serve as the Contract Research Organization (“CRO”) for the ongoing clinical studies of the CyPath® assay. RCRI (www.rcri-inc.com) provides medical device, in-vitro diagnostic and biologics companies with expertise in regulatory affairs, clinical trial design and management, database development, reimbursement strategy, health economics, quality systems and compliance, biostatistics and venture capital due diligence.
 
The Company has signed a Memorandum of Understanding with the University of Texas Health Science Center at San Antonio in San Antonio, Texas, to collaborate on research to optimize the CyPathâ assay.

The Company has contracted with Integritas, LLC of San Antonio, Texas, for business development in the state of Texas.

The Company has contracted with Patrick Sweeney of Cleveland, Ohio, for business development in the state of Ohio.

The Company has retained Sichenzia Ross Friedman & Ference, LLP in New York, New York, to provide legal counsel on securities law and SEC-related matters.

Pilot Clinical Study Update

Biomoda is seeking U.S. Food and Drug Administration (“FDA”) approval of its cytology-based diagnostic technology as a Class III medical device under the Pre-Market Approval ("PMA") process.  
 
An early-stage lung cancer screening program for New Mexico veterans based on the Biomoda technology was funded by the New Mexico State Legislature and administered by the New Mexico Department of Veterans Services and the New Mexico Institute of Mining and Technology. The screening program, the first large-scale study of Biomoda’s CyPath® investigational-use-only (not yet FDA-approved) diagnostic, was the foundation of the pilot clinical trial. Biomoda received full payment of a government contract for reimbursement of research and development costs of $1.3 million for fiscal year ended June 30, 2009, related to this study.
 
 
On March 5, 2009, the Company received approval for the pilot clinical trial from an independent Institutional Review Board ("IRB"). Biomoda’s cytology-based diagnostic technology had previously shown 100 percent sensitivity and 100 percent specificity during internal testing on a small sample of patients. 
 
Thomas L. Bauer, MD, cancer researcher and chief thoracic surgeon with the Christiana Care Health System in Delaware, is the national Principal Investigator (“PI”) overseeing the pilot clinical study. Dr. Bauer has led several lung and esophageal cancer studies.  Dr. Bauer is working with Lara Patriquin, MD, a diagnostic radiologist in Albuquerque, who serves as the Albuquerque PI for the pilot clinical study, and David Hill, MD, the PI for the site in Waterbury, Connecticut. The team of experts that worked with Biomoda on the clinical study included representatives from Quintiles, RCRI and Radiology Associates of Albuquerque. The New Mexico Department of Veterans Services and Black Veterans Association of New Mexico assisted with outreach and recruitment.

Study participants provided deep-lung sputum samples to be screened for the presence or absence of cancer cells. Sputum samples were processed onto microscope slides and incubated in the CyPath® labeling solution which binds to cancer cells. Cells on the slides labeled with CyPath® were analyzed under a microscope for unique fluorescent signature and intensity. Sample adequacy was determined by Pap stain analysis, and study participants underwent CT scans which were read by independent radiologists under the International Early Lung Cancer Action Program (“I-ELCAP”) Enrollment and Screening Protocol. Results based on analysis of the sputum samples labeled with the investigational CyPath® assay in the Biomoda lab were compared to the CT scan diagnostic results of high-risk participants and CT scan and other diagnostic results of cancer patients. 

Veterans recruited for the pilot study were “20 pack year” smokers, individuals who have smoked the equivalent of one pack a day for 20 years or two packs a day for 10 years. In September 2009, Biomoda added a longitudinal component to the pilot clinical trial, which will provide additional data on the efficacy of the Biomoda diagnostic. The pilot clinical study focused on screening military veterans because they may be at least 25 percent more likely to develop lung cancer and die from the disease than the general population, according to a U.S. Department of Defense report.

The pilot clinical trial also included analysis of a cohort of patients with a confirmed diagnosis of lung cancer who had not yet begun treatment for the disease. Biomoda contracted with Christiana Care Health Services and Waterbury Pulmonary Associates Research for sputum sample procurement for the clinical trial’s positive control group. In October 2010, Biomoda reopened patient enrollment and sample collection for the cancer cohort of the pilot study after comprehensive analysis by the medical team of CT scans of patients revealed that some patients enrolled in the study who were suffering from recurrence of lung cancer did not display tumors inside the lung cavity as required by the study protocol.
 
Enrollment and sample collection for the positive control cohort was completed in February 2011. Top-line results for the pilot study released on March 30, 2011, demonstrated that CyPathâ is a significant new biomarker for lung cancer. Sensitivity of the assay was determined at 77% with specificity at 58% accounting for patient factors, and an overall accuracy of 81.3% in the ability to correctly classify groups of study participants into the cancer or high-risk cohorts.  A Receiver Operating Characteristic (ROC) analysis of the sensitivity and specificity was shown to have an associated “p value” of less than .001, resulting in a statistically significant finding of CyPath®’s ability to discriminate between high-risk and cancer groups. Complete data from the pilot study has been submitted for publication in accordance with standard peer review. Dr. Bauer expects to present findings and results at appropriate medical conventions and events.
 
Biomoda has begun preliminary design and coordination for the pivotal clinical trial of our in-vitro diagnostic for early-stage lung cancer. The multi-site pivotal trial will include up to 3,500 patients and will be designed to yield data and analysis sufficient for FDA approval of the assay for commercial use in the United States. The Company expects to complete internal studies focused on optimization of the assay prior to opening pivotal clinical trial sites. These studies include automation using flow cytometry to read the entire sputum sample efficiently, improving methods for the non-invasive collection of sputum samples, and advancing understanding and application of fluorescent microscopy in relation to its ability to identify cancer cells.
 
 
Available Information

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the  Public Reference Room of the Securities and Exchange Commission (“SEC”) at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding the Company and other companies that file materials with the SEC electronically. The Company’s headquarters are located at 609 Broadway NE, Albuquerque, New Mexico. Its telephone number is (505) 821-0875. The mailing address is 609 Broadway NE, Albuquerque, NM 87102.

ITEM 1A. RISK FACTORS

The Company is competing against companies with the financial and intellectual resources and expressed intent of performing rapid technological innovation and substantial scientific research. The Company's resources are limited and must be allocated to focused objectives in order to succeed.

The area of biopharmaceutical research is subject to rapid and significant technological changes. Developments and advances in the medical industry by either competitors or neutral parties can affect the Company's business in either a positive or negative manner.

Developments and changes in technology that are favorable to the Company may significantly advance the potential of the Company's research, while developments and advances in research methods outside of the methods the Company uses may severely hinder or halt completely the Company's development.

Before marketing any of its products, the Company will need to complete multiple clinical investigations of each product. There can be no assurance that the results of such clinical investigations will be favorable to the Company. During each investigative study and prior to its completion, the results of the investigations will remain blinded to ensure the integrity of the study. The Company will not know the results of any study, favorable or unfavorable to the Company, until the study has been completed. Such data must be submitted to the FDA as part of any regulatory filing seeking approval to market the product. Even if the results are favorable, the FDA may dispute the claims of safety, efficacy, or clinical utility and not allow the product to be marketed. The sale price of the product may not be enough to recoup the amount of our investment in conducting the investigative studies.

Biomoda is a small company in terms of employees, technical and research resources, and capital. These factors could hinder the Company's ability to meet changes in the medical industry as rapidly or effectively as competitors with substantially more resources.

Costs of complying with regulatory and legislative matters such as the Clinical Laboratory Improvement Amendments (“CLIA”), which regulates the quality and reliability of medical testing in the United States, and changes to regulations governing FDA approval of clinical devices, as well as adverse changes in zoning laws, tax laws, or other laws affecting the medical and diagnostic industry may prove to be a major obstacle, with respect to both time and costs, in the Company's research and development.

The timing of regulatory filings and approvals, if any, for the Company's products are made less certain by the Company’s intention to market its products throughout the world. Numerous regulatory agencies regulate the sale of diagnostic and therapeutic products, and these agencies may be affected or influenced by criteria materially different than those of the FDA. The sale of the Company's products may be materially affected by the policies of these regulatory agencies or the domestic politics of the countries involved. Biomoda has not applied for and does not now have the approval of any foreign country to sell our products for diagnostic or therapeutic use.
 
Our products are subject to FDA approval and to post-approval FDA reporting requirements.
 
 
ITEM 2. PROPERTIES

The Company’s Research and Development facilities are located in Albuquerque, New Mexico, under a month-to-month lease at approximately $3,700 per month. R&D is housed in approximately 1,300 square feet that includes two state-of-the-art laboratories, where primary research, assay validation and pre-clinical work was conducted, and four administrative offices. Pending additional financing, Biomoda will expand its laboratory facilities in 2012 in order to provide reproducibility for our clinical pivotal trial and thereafter as needed to respond to research and sales demand. For the expanded development phase, no manufacturing facilities will be needed. For the production phase, Biomoda plans to utilize contract manufacturers and suppliers and expects to expand to allow for the manufacture of patient collection kits as appropriate.

ITEM 3. LEGAL PROCEEDINGS

 On April 22, 2009, Biomoda, Advanced Optics Electronics, Inc. (“ADOT”), and Leslie S. Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits. As described below, the Settlement effectively separates Biomoda from ADOT and Robins and cedes control of ADOT to Robins.
 
Pursuant to the Settlement, in addition to executing a release in favor of Biomoda, Robins took the following action:
 
(a)  
paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;
 (b)  
resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;
(c)  
transferred all shares to the Company of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and
(d)  
agreed not to acquire any Biomoda shares in the future.
 
In addition, on April 22, 2009, our President and current board member, John J. Cousins, resigned as a director and officer of ADOT, and Robins was appointed Chairman, Chief Executive Officer and President of ADOT. Pursuant to the Settlement, ADOT also transferred 1,231,575 Biomoda shares to the Company and released Biomoda from all ADOT claims, including claims related to an alleged promissory note dated May 1, 2002, in the amount of $1,030,748, which was disputed and previously written off by Biomoda as of the year ended December 31, 2008.
 
As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda has won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda.  Biomoda submitted a final statement of damages to the Court in November, 2009.  At the hearing on Aug. 4, 2010, defendant Alvin Robins failed to appear.  The Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda.  Subsequently, in an opinion and memoranda issued on August 4, 2010, the Court allowed defendant Alvin Robins ten days to request further hearing on the matter before the Court and to answer the Biomoda argument for damages. Defendant John Kearns is deceased.  Biomoda has waived the right to pursue damages against Mr. Kearns' estate.
 
In Biomoda, Inc. v. Robins, U.S. Dist. Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, with post-judgment interest, in favor of Biomoda and against Alvin D. Robins. No appeal from the Amended Final Judgment has been filed, and the deadline for doing so has passed. The judgment is therefore final and no longer reviewable on appeal. We intend to pursue collection of the judgment.
 
Biomoda does not know of any environmental liability affecting our Company that would have a materially adverse effect on our business. However, various federal, state and local environmental laws make our Company liable for the costs of removal or remediation of certain hazardous or toxic substances. These laws often impose environmental liability regardless of whether the owner was responsible for or knew of the presence of hazardous substances. The presence of hazardous substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent a property or to borrow using the property as collateral. No assurance can be given that the environmental assessments of our property revealed all environmental liabilities, or that a material, adverse environmental condition does not exist on property leased by us.

Employees of the Company dealing with human blood and tissue specimens may be exposed to risks of infection from HIV, hepatitis, tuberculosis, and other blood- and specimen-borne diseases if appropriate laboratory practices are not followed. Although no infections of this type have been reported in the Company’s history, there can be no assurance that such infections will not occur in the future and result in liability to the Company
 
The testing, marketing, manufacturing, distribution, and sale of health care products could expose the Company to the risk of product liability claims. A product liability claim could have a material adverse effect on the business or financial condition of the Company. The Company does not currently maintain product liability insurance coverage. The Company intends to evaluate, depending on the circumstances that exist at the time, whether to obtain any product liability insurance coverage prior to the time that the Company engages in any marketing of its products. Even if the Company should elect to attempt to obtain such coverage in the future, there can be no assurance that product liability insurance will be available to the Company in the future on acceptable terms, if at all, or that such insurance will be sufficient to protect the Company against claims. Therefore, any uninsured loss could adversely affect our financial condition and results of operation.

ITEM 4. (REMOVED AND RESERVED)
 
 
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company’s stock began trading on November 21, 2006, on the OTC Bulletin Board under the symbol "BMOD" and closed on December 31, 2011, at $0.011 per share.
 
For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
Fiscal Year 2010
  
   
High
    
Low
  
First Quarter
  
$
0.47
    
$
0.18
  
Second Quarter
  
$
0.31
    
$
0.14
  
Third Quarter
  
$
0.25
    
$
0.15
  
Fourth Quarter
  
$
0.18
    
$
0.06
  

   
Fiscal Year 2011
  
   
High
    
Low
  
First Quarter
  
$
0.27
    
$
0.06
  
Second Quarter
  
$
0.10
    
$
0.02
  
Third Quarter
  
$
0.04
    
$
0.01
  
Fourth Quarter
  
$
0.02
    
$
0.01
  


Holders of our Common Stock

As of March 15, 2012, the Company estimates that there were approximately 2,100 shareholders.

Dividends

Biomoda has never paid cash dividends on our Common Stock and does not anticipate paying cash dividends in the near future.

Stock Option Grants

No stock options were granted in 2011.  Warrants were issued and are detailed in the appropriate section.
 
 
Penny Stock

Until Biomoda’s shares qualify for inclusion in the NASDAQ system, the public trading, if any, of our common stock will be on the OTC Bulletin Board. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the common stock offered. Our common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock rule." Section 15(g) sets forth certain requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines "penny stock" to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our common stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. "Accredited investors" are persons with net assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held.

Equity Compensation Plans

Currently there is no Equity Compensation Plan. 

ITEM 6.  SELECTED FINANCIAL DATA

As a smaller reporting company, Biomoda is not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
 
Company Overview

Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any revenues from operations. There is no assurance of any future revenues. As of December 31, 2011, Biomoda had an accumulated deficit of $9,322,413 and a working capital deficit of $1,352,911. In addition, Biomoda did not generate any cash from operations and had no cash reserve dedicated to fund expenditures. These factors create an uncertainty as to Biomoda’s ability to continue as a going concern.
 
On July 19, 2006, the Company closed its offering of up to 6,000,000 shares of our common stock pursuant to a registration statement on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended, declared effective on February 11, 2005. The Company’s market maker filed Form 211 with NASD Regulation to initiate quotations in our common stock on the OTC Bulletin Board. The request was cleared on October 19, 2006.

Liquidity and Capital Resources
 
As of December 31, 2011, the Company had cash of $1,073.  
 
Commercialization of Biomoda’s initial lung cancer assay in the United States will require funding of $10 million for continuing research and development, obtaining regulatory approval and commercialization of our products.  This includes an investment of approximately $2 million to complete optimization programs designed to increase the sensitivity and specificity of its lung cancer assay.   Because Biomoda holds patents in the European Union, the Company plans to pursue a CE Mark in Europe that may provide for commercialization of CyPath® a year or more earlier than anticipated in the United States.  In order to execute our business plan for the next twelve months, the Company needs to obtain funding of $1,000,000 to continue operations and $2,000,000 to fully fund our planned expenditures in 2012.    
 
Funding will be sought from both private and public sources. Management is investigating all options to raise funding to meet our working capital requirements, including non-dilutive government grants and program awards. In the past, Biomoda was successful in obtaining government funding totaling $1.6 million from the State of New Mexico to assist in funding the pivotal clinical trial.  Our strategy includes securing similar non-dilutive funding and we are actively pursuing such funding at the federal and state levels in Ohio, Texas, Kansas and Missouri. There can be no assurance that such funding will be available and we presently have no commitments from parties to provide funding.
 
The additional capital will be used to continue optimization studies of the CyPath® assay, launch the pivotal clinical trial, prepare the technology for commercialization in the United States and Europe, and expand application of the assay to other cancers.
 
 
On March 17, 2010, the Company entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser identified on the signature pages thereto (collectively, the “March Purchasers”), pursuant to which Biomoda agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) Series I warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.25 per share, subject to anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the warrant. (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as described in the related warrant agreement, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).

The Company received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after the fees discussed below) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the SEC (the “Registration Statement”) on April 9, 2010.

In connection with the private placement, the Company paid Lifetech, our placement agent, a cash fee of $100,000. LifeTech also received 625,000 Series I Warrants, 375,000 Series II Warrants and 625,000 Series III Warrants. In addition, LifeTech will receive 10% of the exercise price of all Series III Warrants which are exercised. The Company also paid legal fees of approximately $80,000 related to the private placement.

On June 22, 2010, the Company filed an Amended Form S-1 Registration Statement to cover 7,500,001 shares pursuant to the Purchase Agreement by and between the Company and the March Purchasers, pursuant to which Biomoda agreed to sell in a private placement transaction (i) 625,000 shares of our common stock, at a purchase price of $0.16 per share, and (ii) Series I warrants to purchase an additional 6,875,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as further described below. The Amended Form S-1 Registration Statement became effective June 30, 2010.

Series I Warrants to purchase a total of 6,875,004 shares of common stock issued pursuant to the March 2010 private placement contained provisions that protect holders from declines in Biomoda’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of these warrants was recognized as derivative warrant instruments and will be measured at fair value at each reporting period. Accordingly, during the period ended March 31, 2010, the Company charged the amount of $1,780,583 to stockholders' equity for the initial value of the derivative instruments.

During the third quarter of 2010, the Company issued common shares pursuant to the cashless exercise of 589,712 Series II Warrants, and as of December 31, 2010, no Series II Warrants remain outstanding. On August 6, 2010, the Series III Warrants expired without exercise.

During the three months ended June 30, 2011, Biomoda issued 1,560,000 common shares related to the exercise of Series I warrants for cash proceeds of $79,872 at a diluted exercise price of $0.0512 per share. 

During the three months ended September 30, 2011, Biomoda issued 6,500,000 shares pursuant to an exercise of Series I warrants in exchange for cash proceeds of $65,000 at a diluted exercise price of $0.01 per share.

During the three months ended September 30, 2011, Biomoda issued 2,041,667 shares pursuant to a cashless exercise of 3,500,000 Series I warrants.

As of December 31, 2011, the Company had 153,887,725 Series I Warrants outstanding due to the anti-dilution protection provisions.

On September 15, 2010, Biomoda, Inc. entered into a securities purchase agreement with two institutional investors (collectively, the “September Purchasers”), pursuant to which the Company sold in a private placement transaction (the “Financing”) for $500,000 in cash (i) $560,000 in principal amount of convertible notes (“Notes”), that matured on August 31, 2011, with a conversion price equal to the lesser of $0.25 or 80% of the average of the three lowest daily VWAPs for the 20 consecutive trading days prior to the date on which a Purchaser elects to convert all or part of its Note and (ii) 5-Year Warrants to purchase an aggregate of 2,000,000 shares of common stock with an exercise price of $0.25 per share. The Notes also include provisions that protect the holders from declines in the Company’s stock price. The interest rate is 10% per annum and accrues until either the maturity date or conversion of the Notes into shares of Biomoda common stock.
 
 
The September Purchasers contacted the Company to notify it of their intention to convert their Notes at the VWAP price that at the time of contact was calculated at $0.0501, and on March 11, 2011, the Company and the September Purchasers agreed to extend the look-back provision of the VWAP from 20 days to 40 days from the date of conversion.  The subsequent conversions of the Note took place between April 1, 2011 and July 12, 2011 at which time the Note was fully converted and extinguished.
 
Beginning on April 1, 2011 and continuing through July 12, 2011 the September Purchasers exercised their conversion rights in their Notes.  Due to the price protection provision in the Notes, the exercise price of each conversion was reduced.  The exercise price of the conversion on April 1, 2011 was at $0.0501 per share and the exercise price of the final conversion on July 12, 2011 was at $0.01 per share.  All of the outstanding convertible notes and interest were converted as of July 12, 2011, resulting in a total issuance of 27,175,810 common shares.
 
As of December 31, 2011, the Company had 50,000,000 5-Year Warrants outstanding due to the anti-dilution protection provisions.
 
On September 28, 2011, Biomoda filed a Form S-1 Registration Statement with the SEC for the resale of up to 206,387,725 shares of our common stock, including 203,887,725 shares of common stock issuable upon exercise of outstanding common stock purchase warrants currently exercisable at $0.01 per share.  This S-1 registration statement was declared effective on October 11, 2011. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering. 
 
In November 2011, the Company filed two applications for funding under the Small Business Innovation Research (“SBIR”) program, a federal program that provides support for research and development of new or improved technologies with the potential to succeed as commercial products. If our applications are approved, any SBIR funding will be used to continue our optimization research to increase the sensitivity and specificity of the CyPath® assay for the detection and diagnosis of lung cancer in its early stages. The SBIR proposals are focused on adapting the CyPathâ technology to a liquid-based assay that can be read in a flow cytometry system and refining the use of fluorescent microscopy to stabilize the mechanism that excites the active ingredient in CyPathâ.

Overall, the Company decreased its cash position by $247,697 for the year ended December 31, 2011 (compared to a increase in its cash position of $228,729 for the year ended December 31, 2010), resulting from $366,329 used in the Company’s operating activities (compared to $1,237,675 of cash used in 2010), $54,161 used in the Company’s investing activities (compared to $72,521 used in 2010), and $172,793 in cash provided by financing activities (compared to $1,538,925 provided in 2010).

Cash Flows from Operating Activities - Net cash used in operating activities of $366,329 for the year ended December 31, 2011, decreased primarily due to the reduction of the Company’s operations in 2011 due to the limited cash holdings of the Company.

Cash Flows from Investing Activities - Net cash used in investing activities of $54,161 for the year ended December 31, 2011, decreased due to payments for equipment, patents and trademarks.

Cash Flows from Financing Activities - Net cash provided by financing activities of $172,793 for the year ended December 31, 2011, decreased primarily due to the proceeds from issuances of common stock and proceeds from issuance of convertible short term debt during the prior year.
 
 
Results of Continuing Operations

Biomoda has recorded no significant revenue from inception through December 31, 2011.

Operating expenses decreased by $828,776 to $1,154,762 during the year ended December 31, 2011, compared to $1,973,538 for the year ended December 31, 2010. This decrease was primarily due to decreased payroll, investor relations and public relations costs during 2011.

General and administrative expenses consist of expenses for executive and administrative personnel, facilities, consulting services, travel and general corporate activities. The decrease of these costs resulted from decreased payroll, investor relations and public relations costs. The Company expects general and administrative costs to increase in the future as our business matures and develops. Such costs were primarily funded through the issuance of our common stock and debt to conserve our cash resources.

Research and development expenses consist primarily of personnel expenses, consulting fees and lab expenses. Research and development costs decreased by $155,584 due to the completion of the pilot clinical study.  Biomoda believes that continued investment in product development is critical to attaining our strategic objectives and, as a result, expects product development expenses to increase significantly in future periods. Biomoda expenses product development costs as they are incurred.

Professional fees decreased from $260,933 in 2010 to $122,655 in 2011 due to decreased legal and other professional fees during 2011.

Other income (expense) decreased to $924,290 in 2011 compared to an expense of $1,317,757 in 2010.  Other income (expense) consists of interest, unrealized gains/losses on derivative liabilities and other income and expense. Interest expense decreased to $456,666 in 2011 from $851,621 in 2010. The decrease in interest expense was primarily related to the accretion of the discount on the Notes issued in September 2010, as well as the immediate expensing of $643,886 as additional interest expense in 2010, which represented the amount by which the fair value of the warrants issued in connection with the Notes and the Notes conversion option exceeded the principal amount. The Company also recognized $1,371,896 of unrealized (noncash) gain associated with the change in the fair value of the warrant and conversion derivative liabilities discussed above. There was $0 in Other Income in 2011 as compared to $244,479 in federal grant funding received by the Company under IRC section 48D in 2010 and which related to research and development expenses incurred during the Company’s 2009 fiscal year.

The Company had a net loss of $230,472 or $0.00 loss per share, and a net loss of $655,781 or $0.01 loss per share, for the years ended December 31, 2011 and 2010, respectively, due to items discussed above.
  
Inflation

Management believes that inflation has not had a material effect on the Company’s results of operations.

Off-Balance Sheet Arrangements

There are no off-balance sheet financing arrangements.
 
 
Critical Accounting Policies

Estimates

Critical estimates made by management are, among others, estimates for current and deferred taxes, recoverability of intangible assets, collectability of contract receivables, estimation of costs for long-term contracts, allowance for loss on contracts, value of patents and other intangibles, the valuation of derivative liabilities and the valuation of other assets. Actual results could materially differ from those estimates.

Research and Development

Research and development costs are charged to operations as incurred. The Company incurred approximately $255,000, $411,000 and $3,387,000 of research and development expenses (after study reimbursements) for the years ended December 31, 2011 and 2010, and for the period from inception through December 31, 2011.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.
 
 
ITEM 8. FINANCIAL STATEMENTS
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
Biomoda, Inc.
(A Development Stage Company)
Albuquerque, New Mexico
 
We have audited the accompanying consolidated balance sheets of Biomoda, Inc. (a development stage company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years ended December 31, 2011 and 2010 and the period from January 3, 1990 (inception) to December 31, 2011. These financial statements are the responsibility of Biomoda, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements for the period from January 3, 1990 (inception) through December 31, 2005 were audited by other auditors whose reports expressed unqualified opinions on those statements. The consolidated financial statements for the period from January 3, 1990 (inception) through December 31, 2005 include total revenues and net loss of $23 and $3,101,245, respectively. Our opinion on the consolidated statements of operations, stockholders' deficit and cash flows for the period from January 3, 1990 (inception) through December 31, 2011, insofar as it relates to amounts for prior periods through December 31, 2005, is based solely on the reports of other auditors.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biomoda, Inc. as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the two years then ended and for the period from January 3, 1990 (inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is a development stage company which has experienced significant losses since inception with no significant revenues. Also discussed in Note 2 to the consolidated financial statements, a significant amount of additional capital will be necessary to advance the development of the Company's products to the point at which they may become commercially viable. Those conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
April 18, 2012
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
    
December 31,
  
   
2011
    
2010
  
ASSETS
            
CURRENT ASSETS
            
Cash
   $  1,073     $  248,770  
Prepaid expenses
     1,271       2,708  
Deferred charges
     -       23,740  
TOTAL CURRENT ASSETS
     2,344       275,218  
                 
Deferred charges
     750       16,752  
Fixed assets, net of accumulated depreciation of
$19,228 and $17,459
     10,080       11,849  
Patents and trademarks, net of accumulated amortization
of $357,013 and $330,163
     192,126       161,815  
TOTAL ASSETS
   $  205,300     $  465,634  
LIABILITIES & STOCKHOLDERS' DEFICIT
                
CURRENT LIABILITIES
                
Accounts payable
   $  506,323     $  166,276  
Accrued liabilities
     404,744       84,149  
Advances from stockholders
     263,815       228,640  
Short-term debt
     180,373       112,520  
Convertible debt (net of discount of $0 and $461,271)
     -       169,942  
TOTAL CURRENT LIABILITIES
     1,355,255       761,527  
                 
LONG-TERM LIABILITIES
                
Note payable
     -       73,109  
Derivative liabilities - warrant instruments
     32,731       787,081  
Derivative liabilities - option instruments
     -       5,975  
Derivative liabilities - note conversion features
     -       741,589  
TOTAL LIABILITIES
     1,387,986       2,369,281  
                 
COMMITMENTS AND CONTINGENCIES
     -       -  
                 
STOCKHOLDERS' DEFICIT
                
Redeemable preferred stock- Series A; no par value; 2,000,000 shares authorized; cumulative and convertible;
liquidation and redemption values of $1.50 and $1.80 per share, respectively; no shares issued or outstanding
     -       -  
Redeemable preferred- Series B; no par value; 100 shares authorized; 
  liquidation and redemption values of $600; 100 shares issued and outstanding
     60,000       -  
Undesignated preferred stock; 2,000,000 shares authorized; no
  shares issued and outstanding
     -       -  
Common stock, no par value, 700,000,000 shares authorized;
  130,314,363 and 92,936,886 issued and 129,922,786 and
  92,545,311 outstanding, respectively
     8,080,960       7,189,527  
Treasury stock, at cost, 391,575 shares
     (1,233 )     (1,233 )
 Deficit accumulated during development stage
     (9,322,413 )     (9,091,941 )
Total stockholders' deficit
     (1,182,686 )     (1,903,647 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
   $  205,300     $  465,634  
 
The accompanying notes are an integral part of these financial statements
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND
FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO DECEMBER 31, 2011
 
 
Year Ended December 31,
  
January 3, 1990 (Inception) to
  
 
2011
  
2010
     December 31, 2011  
                   
Revenue
   $ -     $ -     $ 23  
                         
Operating expenses
                        
  Professional fees
     122,655       260,933       1,615,538  
  General and administrative
     748,431       1,281,440       7,000,739  
  Research and development, net of grants received
     255,057       410,641       3,386,701  
  Depreciation and amortization
     28,619       20,524       384,689  
                         
          Total operating expenses
     1,154,762       1,973,538       12,387,667  
                         
          Loss from operations
     (1,154,762 )     (1,973,538 )     (12,387,644 )
                         
Other income (expense)
                        
Gain on extinguishment of debt
     -       -       1,326,028  
Gain of sale of assets
     3,000       2,188       39,225  
Unrealized gain (loss) on derivative liabilities- warrant instruments
     712,526       1,993,792       2,706,318  
Unrealized gain (loss) on derivative liabilities- option intruments
     5,975       18,592       24,568  
Unrealized loss on derivative liability-note conversion features
     659,371       (90,221 )     569,150  
Other income
     -       244,479       244,479  
Interest income
     84       548       4,501  
Interest expense
     (456,666 )     (851,621 )     (1,849,038 )
                         
          Total other income (expense)
     924,290       1,317,757       3,065,231  
                         
Loss before provision for income taxes
     (230,472 )     (655,781 )     (9,322,413 )
                         
Provision for income taxes
     -       -       -  
                         
Net loss
   $ (230,472 )   $ (655,781 )   $ (9,322,413 )
                         
Basic and diluted earnings per common share
   $ 0.00     $ (0.01 )        
                         
Basic and diluted weighted average number of common shares outstanding
     113,304,382       88,366,234          
 
The accompanying notes are an integral part of these financial statements.
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                January 3, 1990  
   
December 31,
    
(inception) to
  
   
2011
    
2010
     December 31, 2011  
CASH FLOWS FROM OPERATING ACTIVITIES
                  
Net loss
   $ (230,472 )   $ (655,781 )   $ (9,322,413 )
Adjustments to reconcile net earnings to net
cash used in operating activities
                        
    Depreciation and amortization
     28,619       14,691       378,856  
 Amortization of debt discount
     390,058       169,942       560,000  
 Amortization of deferred financing costs
     23,740       5,833       29,573  
    (Gain)/loss on sale of assets
     (3,000 )     (2,188 )     (4,830 )
    Stock based compensation
     25,000       732,300       3,998,076  
    Unrealized gain on derivative liabilities - warrant instruments
     (712,526 )     (1,993,792 )     (2,706,318 )
    Unrealized gain on derivative liabilities - options
     (5,975 )     (18,592 )     (24,567 )
    Unrealized gain on derivative liabilities - note conversion feature
     (659,371 )     90,221       (569,150 )
    Write-off of license fee
     -       -       1,250  
     Foreign currency translation adjustments
     -       -       3,247  
     Gain on extinguishment of debt
     -       -       (1,283,964 )
     Interest expense incurred on issuance of convertible debt
     -       643,886       643,886  
Changes in operating assets and liabilities
                        
     Prepaid expenses and other current assets
     1,437               1,437  
     Accounts receivable
     -       -       174,222  
     Other assets
     16,002       6,863       37,664  
     Advances on research grants
     -       (25,415 )     -  
     Accounts payable and accrued liabilities
     760,159       (205,643 )     1,604,524  
                         
        Net cash used in operating activities
     (366,329 )     (1,237,675 )     (6,478,507 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                        
     Proceeds from sale of equipment
     3,000       2,188       6,327  
     Purchase of equipment
     -       (11,872 )     (37,443 )
     Organizational costs
     -       -       (560 )
     Expenditures for patents, trademarks and licenses
     (57,161 )     (62,837 )     (566,136 )
                         
        Net cash used in investing activities
     (54,161 )     (72,521 )     (597,812 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                        
    Issuance of common stock for cash
     144,872       1,095,253       4,243,008  
    Proceeds from stockholders' advances
     35,175       13,499       224,406  
    Repayment of line of credit from affiliated entity
     -       -       (341,107 )
    Proceeds/repayments of short-term debt
     -       2,369       (104,954 )
    Proceeds/repayments of convertible short-term debt, net
     -       480,000       480,000  
    Proceeds from line of credit from affiliated company
     -       -       2,680,882  
    Proceeds/repayments of long-term debt, net
     (7,254 )     (52,196 )     (91,226 )
    Acquisition of treasury stock
     -       -       (13,617 )
                         
        Net cash provided by financing activities
     172,793       1,538,925       7,077,392  
                         
NET INCREASE IN CASH
     (247,697 )     228,729       1,073  
                         
Cash at beginning of period
     248,770       20,041       -  
                         
Cash at end of period
   $ 1,073     $ 248,770     $ 1,073  
                         
Supplemental cash flow information:
                        
    Interest expense paid in cash
   $ -     $ -     $ -  
    Income taxes paid in cash
   $ -     $ -     $ -  
                         
Non-cash investing and financing activities:
                        
    Accrued salaries converted to notes payable
   $ -     $ -     $ 479,484  
    Accrued salaries converted to preferred stock
   $ 60,000     $ -     $ 65,504  
    Derivative liability incurred through issuance of warrants
   $ -     $ 3,370,622     $ 3,370,622  
    Settlement of derivative liabilities
   $ 124,042     $ 1,057,699     $ 1,181,741  
    Interest converted to note payable
   $ -     $ -     $ 159,462  
    Common stock issued to extinguish related party debt
   $ -     $ -     $ 1,418,768  
    Common stock issued to extinguish related party debt
   $ -     $ 50,000     $ 50,000  
    Discount on note payable related to deferred financing costs
   $ -     $ 60,000     $ 60,000  
    Discount on note payable related to derivative conversion feature
   $ -     $ 500,000     $ 500,000  
    Conversion of notes payable and accrued interest to common stock
   $ 597,519     $ -     $ 597,519  
 
The accompanying notes are an integral part of these financial statements.
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO DECEMBER 31, 2011
 
                                 
Accumulated
    
Total
  
                                 
Deficit During
    
Stockholders'
  
   
Common Stock
    
Preferred Stock
    
Treasury
    
Development
    
Equity
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Stock
    
Stage
    
(Deficit)
  
Inception
     -     $ -       -     $ -     $ -     $ -     $ -  
Issuance of Common Stock, June 26, 1991
     2,997,000       18,433                                       18,433  
Cumulative Net Loss for the period from January 3, 1990
 (date of inception) to December 31,1996
       (60,010 )     (60,010 )
Balance, December 31, 1996
     2,997,000       18,433       -       -               (60,010 )     (41,577 )
Issuance of Common Stock Warrants on December 31, 1997
       (100,952 warrants at exercise price of $.20)
     -       -                                       -  
Net loss
                                             (32,914 )     (32,914 )
Balance, December 31, 1997
     2,997,000       18,433       -       -               (92,924 )     (74,491 )
Issuance of Common Stock, January 20, 1998
     59,940       10,000                                       10,000  
Exercise of Common Stock Warrants on March 17, 1998
     100,952       20,190                                       20,190  
Issuance of Common Stock, April 15, 1998, net of stock
issuance costs
     631,578       276,350                                       276,350  
Issuance of Common Stock Options, April 15, 1998
       23,650                                       23,650  
Exercise of Common Stock Options, November 2, 1998
     62,237       23,670                                       23,670  
Net loss
                                             (295,948 )     (295,948 )
Balance, December 31, 1998
     3,851,707       372,293       -       -               (388,872 )     (16,579 )
Issuance of Common Stock, January 30, 1999
     180,000       87,300                                       87,300  
Issuance of Common Stock, for the month of March, 1999
     310,000       150,300                                       150,300  
Issuance of Common Stock, May 29, 1999
     51,546       25,000                                       25,000  
Issuance of Common Stock, June 2, 1999
     95,092       50,000                                       50,000  
Issuance of Common Stock, September 30, 1999
     51,546       25,000                                       25,000  
Issuance of Common Stock, December 29, 1999
     92,005       50,143                                       50,143  
Net loss
                                             (303,956 )     (303,956 )
Balance, December 31, 1999
     4,631,896       760,036       -       -               (692,828 )     67,208  
Exercise of Common Stock Options, February 24, 2000
     166,535       80,770                                       80,770  
Issuance of Common Stock, May 12, 2000
     253,609       56,000                                       56,000  
Exercise of Common Stock Options, June 8, 2000
     62,497       30,312                                       30,312  
Issuance of Common Stock, for the month of September, 2000
     96,745       21,086                                       21,086  
Exercise of Common Stock Options, November 3, 2000
     66,000       7,491                                       7,491  
Issuance of Common Stock for Services, December 8, 2000
     40,000       19,400                                       19,400  
Net loss
                                             (257,139 )     (257,139 )
Balance, December 31, 2000
     5,317,282       975,095       -       -               (949,967 )     25,128  
 
The accompanying notes are an integral part of these financial statements.
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO DECEMBER 31, 2011
(Continued)
 
                                   
Accumulated
    
Total
  
                                   
Deficit During
    
Stockholders'
  
   
Common Stock
    
Preferred Stock
      
 Treasury
    
Development
    
Equity
  
   
Shares
    
Amount
    
Shares
    
Amount
      
 Stock
    
Stage
    
(Deficit)
  
Issuance of Common Stock for Services, January 25, 2001
     5,000       2,425                                 2,425  
Issuance of Common Stock, January 31, 2001
     160,000       24,000                                 24,000  
Issuance of Common Stock for Services, April 6, 2001
     15,000       7,276                                 7,276  
Issuance of Common Stock, for the month of April, 2001
     120,000       58,200                                 58,200  
Issuance of Common Stock, June 28, 2001
     20,000       9,700                                 9,700  
Issuance of Common Stock, for the month of August, 2001
     110,000       53,500                                 53,500  
Issuance of Common Stock, November 7, 2001
     10,000       5,000                                 5,000  
Net loss
                                         (372,655 )     (372,655 )
Balance, December 31, 2001
     5,757,282       1,135,196       -       -               (1,322,622 )     (187,426 )
Net loss
                                             (83,689 )     (83,689 )
Balance, December 31, 2002
     5,757,282       1,135,196       -       -               (1,406,311 )     (271,115 )
Exercise of stock options, July 11, 2003
     980,000       147,000                                       147,000  
Net loss
                                             (311,233 )     (311,233 )
Balance, December 31, 2003
     6,737,282       1,282,196       -       -               (1,717,544 )     (435,348 )
Issuance of Common Stock for Services, February 9, 2004
     35,000       5,250                                       5,250  
Exercise of Common stock Options, February 9, 2004
     60,000       30,000                                       30,000  
Issuance of Common Stock for Services, August 5, 2004
     85,000       12,750                                       12,750  
Exercise of Common stock Options, September 27, 2004
     200,000       30,000                                       30,000  
Net loss, December 31, 2004
                                             (758,945 )     (758,945 )
Balance, December 31, 2004
     7,117,282       1,360,196       -       -               (2,476,489 )     (1,116,293 )
Issuance of Common Stock for Services, May 27, 2005
     30,000       4,500                                       4,500  
Issuance of Common Stock for Services, October 12, 2005
     40,000       6,000                                       6,000  
Net loss, December 31, 2005
                                             (624,756 )     (624,756 )
Balance, December 31, 2005
     7,187,282       1,370,696       -       -               (3,101,245 )     (1,730,549 )
Issuance of Common Stock for Services, October 23, 2006
     690,000       544,500                                       544,500  
Issuance of Common Stock in exchange for Debt, October 23, 2006
     1,176,471       1,000,000                                       1,000,000  
Issuance of Common Stock for Services, November 30, 2006
     7,500       28,125                                       28,125  
Issuance of Common Stock for Services, December 15, 2006
     10,000       29,000                                       29,000  
Issuance of Common Stock for Services, December 26, 2006
     15,000       44,850                                       44,850  
Acquisition of Treasury Stock, June 30, 2006
                                    
        (9,000
 )              (9,000 )
Stock-Based Compensation
             35,042                                       35,042  
Net loss, December 31, 2006
                                             (1,807,312 )     (1,807,312 )
Balance, December 31, 2006
     9,086,253       3,052,213       -       -      
        (9,000
 )      (4,908,557 )     (1,865,344 )
 
The accompanying notes are an integral part of these financial statements.
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO DECEMBER 31, 2011
(Continued)
 
                                 
Accumulated
    
Total
  
                                 
Deficit During
    
Stockholders'
  
   
Common Stock
    
Preferred Stock
    
Treasury
    
Development
    
Equity
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Stock
    
Stage
    
(Deficit)
  
Issuance of Common Stock for Services, January 2007
     131,000       259,500                               259,500  
Issuance of Common Stock, January 2007
     30,000       30,000                               30,000  
Issuance of Common Stock for Services, February 2007
     150,000       157,500                               157,500  
Issuance of Common Stock for Services, March 2007
     445,000       375,500                               375,500  
Issuance of Common Stock in exchange for Debt, March 2007
     86,786       73,768                               73,768  
Exercise of Options, March 2007
     2,000       1,000                               1,000  
Issuance of Common Stock for Services, April 2007
     724,062       455,559                               455,559  
Issuance of Common Stock in exchange for Debt, April 2007
     500,000       315,000                               315,000  
Issuance of Common Stock for Services, June 2007
     920,000       154,600                               154,600  
Issuance of Common Stock, June 2007
     343,000       41,667                               41,667  
Issuance of Common Stock for Services, July 2007
     141,000       15,700                               15,700  
Issuance of Common Stock, July 2007
     1,466,635       84,985                               84,985  
Issuance of Common Stock, August 2007
     1,636,166       53,943                               53,943  
Issuance of Common Stock for Services, September 2007
     160,000       12,800                               12,800  
Issuance of Common Stock, September 2007
     2,416,248       54,819                               54,819  
Issuance of Common Stock, October 2007
     1,557,730       36,457                               36,457  
Issuance of Common Stock in exchange for Debt, October 2007
     165,000       16,500                               16,500  
Issuance of Common Stock for Services, November 2007
     770,000       100,100                               100,100  
Issuance of Common Stock, November 2007
     16,190,967       445,674                               445,674  
Issuance of Common Stock for Services, December 2007
     90,140       21,634                               21,634  
Issuance of Common Stock, December 2007
     11,303,996       385,250                               385,250  
Stock-Based Compensation
             55,416                               55,416  
Net loss, December 31, 2007
                                       (2,307,051 )     (2,307,051 )
Balance, December 31, 2007
     48,315,983       6,199,585       -       -       (9,000 )     (7,215,608 )     (1,025,023 )
Issuance of Common Stock, January 2008
     3,887,100       155,077                                       155,077  
Issuance of Common Stock for Services, February 2008
     11,128,967       312,244                                       312,244  
Issuance of Common Stock for Services, February 2008
     1,500,000       180,000                                       180,000  
Issuance of Common Stock for Services, March 2008
     1,725,860       86,293                                       86,293  
Issuance of Common Stock, March 2008
     8,410,112       209,897                                       209,897  
Issuance of Common Stock, April 2008
     1,328,142       33,268                                       33,268  
Issuance of Common Stock for Services, April 2008
     25,000       1,250                                       1,250  
Issuance of Common Stock for Services, June 2008
     237,237       17,779                                       17,779  
Issuance of Common Stock for Services, July 2008
     244,000       12,200                                       12,200  
Issuance of Common Stock for Services, September 2008
     125,000       5,000                                       5,000  
Issuance of Common Stock for Services, October 2008
     47,188       1,888                                       1,888  
Issuance of Common Stock for Services, December 2008
     30,000       900                                       900  
Net loss, December 31, 2008
                                             (315,263 )     (315,263 )
Balance, December 31, 2008
     77,004,589       7,215,381       -       -       (9,000 )     (7,530,871 )     (324,490 )
 
The accompanying notes are an integral part of these financial statements.
 
 
BIOMODA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO DECEMBER 31, 2011
(Continued)
 
                                 
Accumulated
    
Total
  
                                 
Deficit During
    
Stockholders'
  
   
Common Stock
    
Preferred Stock
    
Treasury
    
Development
    
Equity
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Stock
    
Stage
    
(Deficit)
  
Issuance of Common Stock for Services, January 2009
     30,000       1,200                               1,200  
Issuance of Common Stock for Services, June 2009
     30,000       1,200                               1,200  
Adjustment to Treasury Shares on June 30, 2009
             (9,000 )                 9,000             -  
Addition to Treasury Shares September 30, 2009
                                 (4,617 )           (4,617 )
Issuance of Common Stock for Services, July 2009
     250,000       12,500                                 12,500  
Issuance of Common Stock for Cash, August 2009
     100,000       5,000                                 5,000  
Issuance of Common Stock for Services, August 2009
     100,000       7,000                                 7,000  
Issuance of Treasury Shares for Services August 2009
       220,000                                 220,000  
Issuance of Common Stock for Cash, December 2009
     2,000,000       100,000                                 100,000  
Issuance of Treasury Shares for Services October 2009
       72,885                   2,115             75,000  
Net loss, December 31, 2009
                                         (905,289 )     (905,289 )
Balance, December 31, 2009
     79,514,589       7,626,166       -       -       (2,502 )     (8,436,160 )     (812,496 )
Issuance of Common Stock for cash January 2010
     400,000       20,000                                       20,000  
Issuance of Common Stock for cash February 2010
     800,000       40,000                                       40,000  
Issuance of Common Stock for services February 2010
     480,000       105,600                                       105,600  
Issuance of Treasury Shares for Services February 2010
       58,731                       1,269               60,000  
Issuance of Common Stock and Warrants for Cash March 2010
     6,250,001       820,000                                       820,000  
Derivative liabilities on debt, warrants and non-employee options
       (2,312,922 )                                     (2,312,922 )
Issuance of Common Stock for cash June 2010
     335,000       53,600                                       53,600  
Issuance of Common Stock for services June 2010
     625,000       100,000                                       100,000  
Issuance of Common Stock for services to Directors June 2010
     200,000       50,000                                       50,000  
Issuance of Common Stock for cash July 2010
     471,184       66,956                                       66,956  
Issuance of Common Stock for Series II Warrants July 2010
     589,712       -                                       -  
Issuance of Common Stock for services  July 2010
     2,005,000       384,700                                       384,700  
Issuance of Common Stock for cash August 2010
     666,400       94,696                                       94,696  
Issuance of Common Stock for services  to Directors August 2010
     100,000       17,000                                       17,000  
Issuance of Common Stock for services October 2010
     500,000       65,000                                       65,000  
Net loss December 31, 2010
                                             (655,781 )     (655,781 )
Balance, December 31, 2010
     92,936,886       7,189,527       -       -       (1,233 )     (9,091,941 )     (1,903,647 )
Issuance of Common Stock for Services March 2011
     100,000       25,000                                       25,000  
Issuance of Common Stock for Conversion of Debt April, 2011
     4,681,128       226,997                                       226,997  
Issuance of Common Stock for Series I Warrants April 2011
     1,560,000       79,872                                       79,872  
Issuance of Common Stock for Conversion of Debt May, 2011
     4,202,961       112,037                                       112,037  
Issuance of Common Stock for Conversion of Debt June, 2011
     12,876,443       204,332                                       204,332  
Issuance of Common Stock for Conversion of Debt July, 2011
     5,415,278       54,153                                       54,153  
Issuance of Common Stock for Series I Warrants July 2011
     4,000,000       40,000                                       40,000  
Issuance of Common Stock for Cash August 2011
     2,500,000       25,000                                       25,000  
Issuance of Common Stock for Series I cashless Warrants August 2011
     2,041,667       -                                       -  
Issuance of Preferred Stock for Conversion of Accrued Liabilities
     -       100       60,000                       60,000  
Derivative liabilities on debt, warrants and non-employees options
       124,042                                       124,042  
Net loss, December 31, 2011
                                             (230,472 )     (230,472 )
Balance, December 31, 2011
     130,314,363     $ 8,080,960       100     $ 60,000     $ (1,233 )   $ (9,322,413 )   $ (1,182,686 )

The accompanying notes are an integral part of these consolidated financial statements.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
1. ORGANIZATION
 
FORMATION AND NATURE OF BUSINESS

Biomoda, Inc. ("Biomoda") is a development stage company incorporated in the state of New Mexico on January 3, 1990 (“inception”). On August 13, 2003, Biomoda formed a wholly owned subsidiary known as Biomoda Holdings, Inc., a Nevada corporation, for the purpose of research, development, production and marketing of medical and biomedical products. Biomoda Holdings was subsequently dissolved on January 8, 2010. Biomoda is hereinafter referred to as the "Company."

Biomoda's primary focus is on early cancer detection technology. Biomoda's unique cell-targeting technology is globally patented for the detection of pre-cancerous and cancerous conditions in all human tissue. This technology, based on a compound called Tetrakis Carboxyphenyl Porphine (“TCPP”), was developed at St. Mary's Hospital in Colorado and the Los Alamos National Laboratory (“LANL”) in New Mexico. Biomoda obtained a worldwide exclusive license to the TCPP technology from LANL in late 1995 and began new research broadening the scope of the original patent and technology. In November 2000, Biomoda filed a new U.S. provisional patent application defining the ability of Biomoda's version of TCPP to detect pre-cancerous and cancerous conditions in all human tissue. The Company has received four patents and currently has three applications pending.

On July 19, 2010, Biomoda filed an additional patent application, “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” which provides a quantitative method for reading tissue samples for signs of malignant cells based on flow cytometry and dark-field microscopy.

Biomoda also holds international patent rights in Japan, Mexico, Canada, Australia and Europe. Biomoda began the commercialization process by trademarking the technology as CyPath®. Management expects to continue optimization research and clinical studies on the CyPath® diagnostic assay in order to submit its product registration to the U.S. Food and Drug Administration (“FDA”).
 
The Company successfully completed a pilot clinical lung cancer trial in March, 2011, that proved the efficacy of a non-invasive protocol for diagnosing lung cancer using CyPath®.  The next stage of development in clinical trials is optimization of the lung cancer assay and is expected to take one year to complete.  Commercialization of the technology is expected to take at least three years.
 
2. DEVELOPMENT STAGE AND GOING CONCERN

Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any significant revenues from operations, and there is no assurance of any future revenues. Biomoda has raised approximately $4,100,000 in funding for continuing research and development, obtaining regulatory approval and for the commercialization of its products through the sale of Biomoda's common stock. As of December 31, 2011, Biomoda had an accumulated deficit of $9,322,413, a working capital deficit of $1,352,911 and does not expect to generate revenues to sustain operations in the near term. Biomoda requires substantial additional funds to pursue its business plan and sustain its operations for the next twelve months.

Due to the contractual obligations associated with the issuance of the March 17, 2010, Series I Warrants and September 15, 2010 Warrants, as of December 31, 2011 and outstanding non-employee options, the Company had a total potential obligation to issue up to 203,996,493 shares of common stock upon the exercise of outstanding warrants and options. The dilutive effect of these potential share issuances greatly impacts our ability to secure new funding.

These factors raise substantial doubt as to our ability to continue as a going concern.

We will require additional funding for continuing research and development, obtaining regulatory approval and commercialization of our products. There is no assurance that Biomoda will be able to obtain sufficient additional funds or that such funds, if available, will be obtainable on terms satisfactory to Biomoda. The consolidated financial statements do not include any adjustments that might be necessary should Biomoda be unable to continue as a going concern.

 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
 
2. DEVELOPMENT STAGE AND GOING CONCERN (Continued)

The Company is exploring all options to raise capital during the twelve months ending December 31, 2012, including non-dilutive government grants and program awards. The additional capital will be used to continue development of the CyPath® assay to optimize and ready the technology for commercialization in the United States and Europe, and expand application of the assay to other cancers.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding Biomoda's consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ("GAAP") in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.
 
PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Biomoda and its wholly-owned subsidiary, Biomoda Holdings, Inc. Biomoda Holdings, Inc. was dissolved on January 8, 2010. All significant inter-company accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

Biomoda prepares its consolidated financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates made by management include, among others, realization of long-lived assets, valuation of derivative liabilities and estimates for deferred income tax asset valuation allowances. Actual results could differ from those estimates.

RISKS AND CONTINGENCIES

Biomoda has a limited operating history. Biomoda has not yet generated significant revenue from its business operations. As a new operating entity in its current form, Biomoda faces risks and uncertainties relating to its ability to successfully implement its strategy. Among other things, these risks include the ability to develop and sustain revenue growth; manage operations; competition; attract, retain and motivate qualified personnel; maintain and develop new strategic relationships; and the ability to anticipate and adapt to the changing biotechnology market and any changes in government regulations. Biomoda has no experience in obtaining regulatory clearance of these types of products. Therefore, Biomoda may be subject to the risks of delays in obtaining, or failing to obtain, regulatory clearance and other uncertainties, including financial, operational, technological, regulatory and other risks associated with an emerging business, including the potential risks of business failure.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, derivative liabilities, accounts payable, accrued expenses, and short-term debt. The carrying values of the Company’s cash and cash equivalents, accounts payable, accrued expenses and short-term debt approximate their fair values due to their short-term nature. The derivative liabilities are stated at their fair value at each reporting period. The Company uses a binomial lattice model to determine the fair values of these derivative liabilities. See Note 10 for the Company’s assumptions used in determining the fair value of these financial instruments.
 
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are being depreciated using the straight-line method over the estimated useful lives of the related assets, which generally range between three and ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease terms. Biomoda has assumed that leases with terms of less than five years will be renewed and has used the estimated renewal time frame for amortization purposes. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement, other disposition of property and equipment or termination of a lease, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in results of operations.

LONG-LIVED ASSETS

Long-lived assets, including intangible assets such as patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. No impairments of long-lived assets were recognized in 2011 or 2010; however, there can be no assurance that market conditions will not change which could result in impairment of long-lived assets in the future.
 
PATENTS

Costs incurred in connection with securing a patent, including attorney’s fees, have been capitalized and are amortized over 20 years from the date of application using the straight-line method. See Note 4 for additional information about patents. Costs related to patents pending are amortized beginning upon issuance of the related patents.
 
RESEARCH AND DEVELOPMENT

Research and development costs, net of grants received, are expensed as incurred. Biomoda incurred approximately $255,000, $411,000 and $3,387,000 of research and development expenses for the years ended December 31, 2011 and 2010, and for the period from inception through December 31, 2011. Grants received in the period in which the associated research and development activities occur are recorded as a reduction in research and development expense.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
On July 20, 2010, Biomoda submitted an application for a grant under the Qualifying Therapeutic Discovery Project provided under new section 48D of the Internal Revenue Code (“IRC”), enacted as part of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148). The Company was notified on November 1, 2010, that it was awarded $244,479 in federal grant funding under section 48D related to research and development costs incurred during the fiscal year ended 2009. The grant funding was received on November 24, 2010 and, accordingly, has been shown as other income in the accompanying consolidated income statement.

INCOME TAXES

Biomoda accounts for income taxes under the provisions of ASC 740 – Income Taxes (formerly SFAS No. 109, "Accounting for Income Taxes"). ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse. A valuation allowance is established for any portion of the deferred tax asset that will likely not be realized.

STOCK-BASED COMPENSATION

All share-based payments to employees or consultants, including grants of employee stock options, are recognized in the financial statements based on their fair values on the grant date.

BASIC AND DILUTED LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts, such as stock options and warrants to issue common stock, were exercised or converted into common stock. Biomoda reported a net loss for the years ended December 31, 2011 and 2010. As a result, shares of common stock issuable upon exercise of 108,768 stock options and 153,887,725 warrants under the March, 2010 funding and 50,000,000 under the September, 2010 financing, have been excluded from the calculation of diluted loss per common share for the respective years because the inclusion of such securities would be anti-dilutive.
 
RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements did not or are not believed by management to have a material impact on Biomoda's present or future consolidated financial statements.

 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
4. PATENTS

The Company amortizes patent expense over the useful life of the patent, which is twenty years from the date of application, using a straight-line method. This represents a change from the estimated useful life applied in previous years, which was seventeen years from the date of issuance.
 
5. RELATED PARTY TRANSACTIONS
 
On August 22, 2011, the Company adopted a Statement of Resolutions, pursuant to the provisions of NMSA 1978, Section 53-11-16 (2001) and Article 4 of the Articles of Incorporation, as amended, establishing a Series of Preferred Stock of the Company, consisting of 100 shares designed as Series B Preferred Stock.  Each share of Series B Preferred Stock has a liquidation preference of $0.01 and does not accrue any dividends. Each share of Series B Preferred Stock may be redeemed by the Company at a price of $600.00 per share.  Each share of Series B Preferred Stock shall entitle the holder thereof to cast such number of votes equal to 0.51% of the total number of votes entitled to be cast at a meeting of shareholders.  As a result, the 100 shares of Series B Preferred Stock are entitled to cast 51% of the number of votes entitled to be cast at a meeting of shareholders.

On August 22, 2011, the Company issued 50 shares of the Series B Preferred Stock to each of Maria Zannes, the Company’s Chief Executive Officer and John Cousins, the Company’s President, in exchange for the retirement of $30,000 in accrued but unpaid compensation to each person.

As of December 31, 2011 and 2010, Biomoda had advances and accrued interest of $263,815 and $228,640, respectively, payable to two of its stockholders and Biomoda’s Chief Executive Officer. The advances by stockholders bore interest at 10% per annum and are due on demand. The advances from Biomoda’s Chief Executive Officer are due on April 17, 2012 and bear interest at 10% per annum. Interest expense related to such advances for the years ended December 31, 2011 and 2010, and for the period from inception through December 31, 2011, was approximately $13,000, $13,000 and $107,000, respectively.

The Company is in the process of contesting the validity of the two note obligations to the stockholders who were formerly related to the Company. Pending the resolution of this process, the Company has left the obligation on the books and continues to accrue interest in order to show the worst case scenario in possible payment by the Company. 
 
 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
6. SHORT- AND LONG-TERM DEBT

Biomoda entered into two, 60-month leases with Beckman Coulter for two flow cytometers related to the New Mexico Department of Veterans Services study. The total monthly payment for both leases is $3,627. As of December 31, 2011 and 2010, the total lease obligation was $125,892 and $133,516, respectively, of which $125,892 and $60,407 were classified as short-term debt. In January 2012, Beckman Coulter sought return of the leased flow cytometer held by Biomoda and the equipment was returned to the distributor due to payment default on the leasing agreement.  Biomoda and Beckman Coulter currently are in negotiation for payment of the full amount due under the lease agreements.  The distributor also is seeking return of the second flow cytometer should the parties be unable to settle on the amount due under the lease payments. 

The Company also has a promissory note payable to a former employee of Biomoda. The note was originally due on December 31, 2008, subject to the availability of funds, and accrues interest at 5% after that date. The current balance is $54,481, all of which has been classified as short-term debt in the accompanying consolidated balance sheet.  
 
7. CONVERTIBLE DEBT

On September 15, 2010, Biomoda entered into a Securities Purchase Agreement with two institutional investors (collectively, the “Purchasers”), pursuant to which the Company sold in a private placement transaction (the “Financing”) for $500,000 in cash (i) $560,000 in principal amount of convertible notes (“Notes”), that matured on August 31, 2011, with a conversion price equal to the lesser of $0.25 or 80% of the average of the three lowest daily VWAPs for the 20 consecutive trading days prior to the date on which a Purchaser elects to convert all or part of its Note and (ii) 5-Year Warrants to purchase an aggregate of 2,000,000 shares of common stock with an exercise price of $0.25 per share. The Notes also include provisions that protect the holders from declines in the Company’s stock price. The interest rate is 10% per annum and accrues until either the maturity date or conversion of the Notes into shares of Biomoda common stock.
 
Biomoda paid an origination fee of $15,000 to the Purchasers and an additional $5,000 to the Purchasers for their legal fees, which has been treated as a deferred financing cost and was amortized over the term of the Notes. The proceeds from the Notes cannot be used to pay off any debt or advances from shareholders.

The 2,000,000 warrants include provisions that protect the holders from declines in the Company’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. See Note 10 for further discussion of the treatment of these warrants.

Due to the Notes’ conversion feature, the actual number of shares of common stock that would be required if a conversion of the Notes was made through the issuance of common stock cannot be predicted, and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized common share amount. As a result, the conversion feature requires derivative accounting treatment and was bifurcated from the Note and “marked to market” each reporting period through the consolidated income statement.

On the date of the transaction, the 2,000,000 warrants issued in connection with the Notes had an estimated fair value of $492,518. The conversion feature had an estimated value of $651,368. See Note 10 for further discussion.

The fair value of the warrants and the conversion option in excess of the principal amount of the Notes of $643,886 was expensed immediately as additional interest expense.

The following table details the accounting for the Notes at inception

Principal amount
  
$
560,000
  
Less: original issue discount
    
(60,000
)
Less: discount for conversion feature and fair value of warrants
    
(500,000
)
Carrying amount at inception
  
$
-
  

The discounts on the Notes were accreted over their term. During the years ended December 31, 2011 and 2010, the Company recognized $390,058 and $169,942 respectively, of interest expense related to the accretion of the discounts.
 
The Purchasers contacted the Company to notify it of their intention to convert their Notes at the VWAP price that at the time of contact was calculated at $0.0501, and on March 11, 2011, the Company and the Purchasers agreed to extend the look-back provision of the VWAP from 20 days to 40 days from the date of conversion.  

As of December 31, 2011, the $560,000 principal balance of the convertible notes and $37,519 in accrued interest were converted into 27,175,810 shares of the Company’s common stock and the derivative liabilities were settled upon conversion.
 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010

8.  EQUITY TRANSACTIONS
 
PREFERRED STOCK

On June 19, 1991, Biomoda authorized the issuance of 4,000,000 shares of preferred stock. Biomoda designated 2,000,000 shares as the Series A convertible preferred stock ("Series A"). Series A has liquidation and redemption values of $1.50 and $1.80 per share, respectively. The stock is subject to redemption at the discretion of Biomoda. Prior to redemption, each share of the Series A can be converted into one share of common stock at the discretion of the stockholders. The holders of Series A will be entitled to dividends equal to the amount of dividends for the number of shares of common stock into which it is entitled to be converted. As of December 31, 2011, Biomoda has not issued any Series A preferred shares.

On August 22, 2011, the board of directors designated a series of Preferred Stock of the Corporation as Series B Preferred Stock (“Series B”). The authorized number of shares of Series B Preferred Stock is 100 shares at a value of $600 per share. Each share of Series B Preferred Stock provides the holder with voting rights only and entitles the holder to cast such number of votes equal to 0.51% of the total number of votes entitled to be cast at any shareholder meeting of the Company. The Series B Preferred Stock is not entitled to dividends. The Company has the right to redeem the outstanding shares of Series B Preferred Stock at $600 per share.  The issuance of the Series B shares results in the shareholders of the Series B preferred stock holding 51% of the voting rights on all Company matters.

During the three months ended September 30, 2011, Biomoda issued an aggregate of 100 shares of Series B Preferred Stock (50 shares to each of Maria Zannes, Chief Executive Officer, and John Cousins, Chief Financial Officer) in satisfaction of $60,000 of accrued salaries due as of September 30, 2011.

COMMON STOCK
 
On September 16, 2011, a majority of shareholders approved an increase in authorized shares of the Company’s common stock to 700,000,000.

2011 Issuances  

During the three months ended March 31, 2011, Biomoda issued 100,000 restricted common shares to Directors. These shares were valued at $25,000 based upon the Company’s stock price of $0.25 per share on the date of grant.

During the three months ended June 30, 2011, Biomoda issued 21,760,532 common shares related to the conversion of $543,366 of Notes principal and accrued interest. 

During the three months ended June 30, 2011, Biomoda issued 1,560,000 common shares related to the exercise of Series I warrants for cash proceeds of $79,872. 

During the three months ended September 30, 2011, Biomoda issued 4,000,000 shares pursuant to an exercise of Series I warrants in exchange for cash proceeds of $40,000 ($0.01 per share).

During the three months ended September 30, 2011, Biomoda issued 2,500,000 shares pursuant to an exercise of Series I warrants in exchange for cash proceeds of $25,000 ($0.01 per share).

During the three months ended September 30, 2011, Biomoda issued 2,041,667 shares pursuant to a cashless exercise of 3,500,000 Series I warrants.

During the three months ended September 30, 2011, Biomoda issued 5,415,278 common shares related to the conversion of $54,153 of principal and accrued interest.

2010 Issuances

During the three months ended March 31, 2010, Biomoda issued 480,000 restricted common shares to employees as additional compensation. These shares were valued at $105,600 based upon the Company’s stock price on the date of grant.

During the three months ended March 31, 2010, Biomoda issued 1,200,000 restricted common shares pursuant to an agreement with members of our board of directors for total cash consideration of $60,000.

 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
8.  EQUITY TRANSACTIONS (Continued)
 
COMMON STOCK (Continued)
 
On March 17, 2010, we entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) Series I warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as further described below (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as further described below, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).

We received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after the fees discussed below) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the Securities and Exchange Commission on April 9, 2010.

In connection with the private placement, we paid our placement agent, LifeTech Capital, a cash fee of $100,000 and issued it a five-year warrant to purchase 625,000 shares of our common stock with an exercise price of $0.16 per share. LifeTech also received 625,000 Series I Warrants, 375,000 Series II Warrants and 625,000 Series III Warrants. In addition, LifeTech will receive 10% of the exercise price of all Series III Warrants which are exercised. We also paid legal fees of approximately $80,000 related to the private placement.
 
During the three months ended June 30, 2010, Biomoda issued 335,000 common shares pursuant to the exercise of Series III warrants for net cash consideration of $53,600.

During the three months ended June 30, 2010, Biomoda issued 625,000 restricted common shares to a consultant for services pursuant to a contract. These shares were valued at $100,000 or $0.16 per share based upon the Company’s stock price on the date of grant.

During the three months ended June 30, 2010, Biomoda issued 200,000 restricted common shares to Directors. These shares were valued at $50,000 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 1,630,000 common shares to a consultant for services pursuant to a contract. These shares were valued at $309,700 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 100,000 restricted common shares to directors. These shares were valued at $17,000 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 1,137,584 common shares pursuant to the exercise of Series III Warrants for net cash consideration of $161,652 (net of placement fees of $20,361) or $0.16 per share.

During the three months ended September 30, 2010, Biomoda issued 589,712 common shares pursuant to the cashless exercise of Series II Warrants.

During the three months ended September 30, 2010, Biomoda issued 375,000 restricted common shares to employees as additional compensation. These shares were valued at $75,000 based upon the Company’s stock price on the date of grant.
 
During the three months ended December 31, 2010, Biomoda issued 500,000 common shares to a consultant for services pursuant to a contract. These shares were valued at $65,000 based upon the Company’s stock price on the date of the agreement.

 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
8.  EQUITY TRANSACTIONS (Continued)
 
COMMON STOCK (Continued)
 
Treasury Stock Activity  
 
The Company accounts for treasury stock as a reduction in capital stock based upon the cost of the shares acquired.

2010 Activity

During the three months ended March 31, 2010, Biomoda issued 300,000 common shares from our treasury stock for services valued at $60,000 based upon the price of our common stock on the date of agreement.

During the three months ended March 31, 2010, Biomoda acquired 100,000 shares of common stock at zero cost as part of a settlement agreement with a vendor.

2011 Activity

The Company had no activity in Treasury Stock during the year ended December 31, 2011. As of December 31, 2011 and 2010, Biomoda had 391,575 treasury shares remaining, acquired at a cost of $1,233.

Other

During the three months ended June 30, 2010, as a consequence of the March 17, 2010, private placement discussed above, Biomoda recorded a charge of $1,570,724 to stockholders' equity resulting from insufficient authorized but unissued shares of common stock to meet all its common share obligations in the event all outstanding common stock equivalents were converted into shares of the Company, which triggered liability accounting for non-employee warrants and options. On September 16, 2011, Biomoda held its annual meeting of shareholders and among other things, approved an increase in authorized shares to 700,000,000 which enabled Biomoda to meet its potential common share obligations at that time.

During the nine months ended September 30, 2011, as noted above, the convertible notes payable were converted into shares of the Company’s common stock. Accordingly, the Company credited the remaining derivative liability associated with the convertible notes and accrued interest of $82,218 to stockholders’ equity for the nine months ended September 30, 2011.

During the nine months ended September 30, 2011, as noted above, the Company issued shares of common stock through the exercise of outstanding Series I Warrants. Accordingly, the Company credited the derivative liability associated with the Warrants in the amount of $41,825 to stockholders’ equity for the nine months ended September 30, 2011.

On May 29, 2010, the Company received stockholder approval for an increase in its authorized shares to 150,000,000. With the increase in the Company’s authorized shares to 150,000,000, the circumstances that triggered liability accounting for non-employee warrants and options were resolved. Accordingly, on May 29, 2010, the Company credited the remaining derivative liability associated with these warrants and options of $1,057,699 to stockholders’ equity.

On September 15, 2010, due to the conversion feature contained in the Convertible Notes, the actual number of shares of common stock that would be required if a conversion of the Notes as further described in Note 7 was made through the issuance of Common Stock cannot be predicted and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized share amount, which triggered liability accounting for non-employee warrants and options. Accordingly, on September 15, 2010, the Company charged the amount of $19,314 to stockholders' equity.

See Note 10 for further discussion.
 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
8.  EQUITY TRANSACTIONS (Continued)
 
COMMON STOCK (Continued)
 
STOCK OPTIONS AND WARRANTS

No options were granted in 2011 or 2010. All options outstanding are fully vested, and there was no unrecognized stock-based compensation expense as of December 31, 2011 and 2010, respectively.
 
A summary of changes in outstanding options is as follows:
 
   
Number of Shares
    
Weighted-Average Exercise Price
  
Options outstanding and exercisable at December 31, 2009
    
1,138,768
    
$
0.36
  
Exercised
    
-
      
-
  
Cancelled/forfeited
    
(1,030,000)
    
$
0.15
  
Options outstanding and exercisable at December 31, 2010
    
108,768
    
$
2.34
  
Exercised
    
-
      
-
  
Cancelled/forfeited
    
-
    
$
-
  
Options outstanding and exercisable at December 31, 2011
    
108,768
    
$
2.34
  

The number of outstanding and exercisable options as of December 31, 2011, is provided below:
 
Number of Shares
    
Weighted-Average Exercise Price
  
Weighted-Average Remaining Life (Years)
 
33,768
    
$
0.28
  
1.14
 
75,000
    
$
2.06
  
1.32
 
108,768
    
$
2.34
  
2.46

Outstanding and exercisable options had no intrinsic value as of December 31, 2011.

The number of outstanding and exercisable options as of December 31, 2010, is provided below:
 
Number of Shares
    
Weighted-Average Exercise Price
  
Weighted-Average Remaining Life (Years)
 
33,768
    
$
0.28
  
1.45
 
75,000
    
$
2.06
  
2.01
 
108,768
    
$
2.34
  
3.46

Outstanding and exercisable options had no intrinsic value as of December 31, 2011 and 2010.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010

 
Warrants

A summary of the changes in warrants outstanding during the years ended December 31, 2011 and 2010, respectively, is as follows:
 
   
Number of Shares
    
Weighted
  
         
Average Exercise Price
  
Outstanding at December 31, 2009
     -     $ -  
Issued
     19,875,002       0.17  
Exercised
     (2,062,296 )     0.16  
Cancelled/expired
     (8,937,705 )     0.10  
Outstanding at December 31, 2010*
     8,875,001     $ 0.25  
Issued
     -       -  
Exercised
     (11,560,000 )     0.01  
Warrants issued pursuant to anti-dilution provisions
     206,572,724       0.01  
Cancelled/expired
     -       -  
Outstanding at December 30, 2011
     203,887,725       0.01  
 
*As a result of the conversion of the Notes, due to contractual provisions contained in the Series I Warrants and the 5-Year Warrants discussed further in Note 9 below, the exercise price of those warrants was reduced from $0.25 per share to $0.01 per share and the number of shares issuable upon exercise of those warrants increased from approximately 8,875,001 shares to as many as 203,887,725, net of warrants previously exercised.

As of December 31, 2011 and 2010, outstanding warrants had no intrinsic value and a weighted average contractual term of 3.33 and 4.32 years, respectively.
 
In March 2010, pursuant to the common stock private placement described in Note 8 above, the Company issued Series I, II, and III Warrants. The Series I Warrants were exercisable to initially purchase an aggregate of 6,875,001 shares of the Company’s common stock over a five-year term at an exercise price equal to 125% of the closing price on March 12, 2010, or $0.25 per share, subject to anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the Series I Warrant. 

The Series I Warrants expire on the fifth anniversary of the closing of the Purchase Agreement. If at any time after the Initial Exercise Date, as such term is defined in the warrant agreement, there is no effective Registration Statement registering the resale of the Warrant Shares by the Holders, then the Series I Warrant may also be exercised, in whole or in part, by means of a “cashless exercise.” A Registration Statement to register the initial amount of Warrant Shares was filed and declared effective on May 6, 2010.  
 
During the 12 months ended December 31, 2011, 8,060,000 Series I Warrants were exercised at a price per share of $0.0179 for cash proceeds of $144,872. Also during the 12 months ended December 31, 2011, 3,500,000 Series I Warrants were exercised as cashless warrants, which resulted in the issuance of 2,041,667 shares.
 
During the three months ended September 30, 2010, the Company issued common shares pursuant to the cashless exercise of 589,712 Series II Warrants. The remaining Series II Warrants expired during 2010.
 
In August 2010, we issued 1,137,584 common shares pursuant to the exercise of Series III Warrants for total cash consideration of $182,013 (net proceeds of $161,642) or $0.16 per share. The remaining Series III warrants expired August 6, 2010.

In connection with the private placement, Biomoda paid our placement agent 625,000 warrants. These warrants provide the agent a five-year right to acquire shares of the Company’s stock at $0.25 per share. These warrants are not subject to any adjustments with respect to the exercise price or number of shares covered, except in limited circumstances.
 
On September 15, 2010, as part of the sale of a convertible debenture, Biomoda issued 5-Year Warrants to purchase an aggregate of 2,000,000 shares of common stock with an exercise price of $0.25 per share, subject to full-anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the 5-Year Warrants. None of these 5-Year Warrants have been exercised. See Note 10 for additional information.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
9.   DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT

Series I Warrants

The Company determined that Series I Warrants to purchase a total of 6,875,004 shares of common stock issued pursuant to the March 2010 private placement contained provisions that protect holders from declines in Biomoda’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of these warrants was recognized as derivative warrant instruments and will be measured at fair value at each reporting period. Accordingly, at the inception of the Series I Warrants, during the period ended March 31, 2010, the Company charged the amount of $1,780,583 to stockholders' equity.

The Company measured the fair value of these instruments as of December 31, 2011, and recorded an unrealized gain of $537,776 for the year ended December 31, 2011. The Company determined the fair values of these securities using a binomial lattice valuation model.

The fair value of the derivative warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of December 31, 2011:

Common stock issuable upon exercise of warrants
    
153,887,725
  
Estimated market value of common stock on measurement date
  
$
0.014
  
Exercise price
  
$
0.01
  
Risk-free interest rate (1)  
    
0.84
%
Warrant lives in years
    
3.21
  
Expected volatility (2) 
    
196.99
%
Expected dividend yield (3)  
    
None
  
Probability of reset to conversion price (4)
    
40
%
 
(1)
The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of five years.
(2)
The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)
This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.

At December 31, 2011, the derivative liability associated with the Series I Warrants was $17,929.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010

On April 1 2011, the holders of the Series I Warrants exercised 1,560,000 warrants.  Biomoda measured the fair value of the warrants exercised and credited the derivative liability associated with warrants exercised in the amount of $40,246 to stockholders’ equity.

The fair value of the derivative warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of April 1, 2011:

Common stock issuable upon exercise of warrants
    
34,375,005
  
Estimated market value of common stock on measurement date
  
$
0.0832
  
Exercise price
  
$
0.0512
  
Risk-free interest rate (1)  
    
2.01
%
Warrant lives in years
    
3.96
  
Expected volatility (2) 
    
191.29
%
Expected dividend yield (3)  
    
None
  
Probability of reset to conversion price (4)
    
40
%

(1)
The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of five years.
(2)
The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)
This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.

During the nine months ended September 30, 2011, the holders of the Series I Warrants made several exercises for a total of 10,000,000 warrants.  Biomoda used a weighted average exercise price in a single lattice model to estimate the fair value of the warrants exercised.  Biomoda measured the fair value of the warrants exercised and credited the derivative liability associated with warrants exercised in the amount of $1,577 to stockholders’ equity.

The fair value of the derivative warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of August 31, 2011:

Common stock issuable upon exercise of warrants
    
163,887,725
  
Estimated market value of common stock on measurement date
  
$
0.02
  
Exercise price
  
$
0.01
  
Risk-free interest rate (1)  
    
0.93
%
Warrant lives in years
    
3.55
  
Expected volatility (2) 
    
192.91
%
Expected dividend yield (3)  
    
None
  
Probability of reset to conversion price (4)
    
40
%

(1)
The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of five years.
(2)
The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)
This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.
 

 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
9.   DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)

5-Year Warrants
 
The Company determined that the 5-Year Warrants issued in connection with the sale of the Notes discussed in Note 7 to initially purchase 2,000,000 shares of common stock with an exercise price of $0.25 per share contain provisions that protect the holders from declines in the Company’s stock price that could result in modification of the exercise price of the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of the 5-Year Warrants was recognized as a derivative warrant instrument and will be measured at fair value at each reporting period. Accordingly, on September 15, 2010, the Company established a derivative liability for the 5-Year Warrants of $492,518.
 
The Company measured the fair value of these instruments as of December 31, 2011, and recorded an unrealized loss for the year ended December 31, 2011, of $174,750. The Company determined the fair values of these securities using a binomial lattice valuation model.

The fair value of the derivative 5-Year Warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of December 31, 2011:

   
Assumptions at
December 31, 2011
  
Common stock issuable upon exercise of warrants
    
50,000,000
  
Estimated market value of common stock on measurement date
  
$
.014
  
Exercise price
  
$
.01
  
Risk-free interest rate (1)  
    
1.03
%
Warrant lives in years
    
3.71
  
Expected volatility (2) 
    
196.99
%
Expected dividend yield (3)  
  
-
  
Probability of reset to conversion price (4)
    
40
%

(1)
The risk-free interest rate was determined by management based on the yield of U.S. Treasury securities with a five-year constant term maturity on December 31, 2011.
(2)
The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)
This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.

At December 31, 2011, the derivative liability associated with the 5-year Warrants was $14,803.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
9.   DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)
 
 
Convertible Notes
 
On September 15, 2010, due to the conversion feature, the actual number of shares of common stock that would be required if a conversion of the Notes as further described in Note 8 was made through the issuance of Common Stock could not be predicted, and Biomoda could have been required to issue an amount of shares that caused it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the Notes and “marked to market” each reporting period through the income statement.
 
The fair value of the Notes was recognized as a derivative liability instrument and is measured at fair value at each reporting period. Accordingly, on September 15, 2010, the Company established a derivative liability for the Notes of $651,368. The derivative liability related to the Notes had a carrying value of $741,589 at December 31, 2010.
 
During the year ended December 31, 2011, all of the Convertible Notes, together with accrued interest, had been converted into stock. The Company measured the fair value of the instruments as of May 31, 2011, and recorded an unrealized gain for the year ended December 31, 2011, of $ 659,371.  The Company credited the derivative liability associated with the convertible notes of $82,218 to stockholders’ equity upon full conversion of the outstanding convertible notes.
 
The accounting guidance states that warrants, stock options and conversion features which are accounted for as a derivative liability should be revalued each reporting period until the circumstances which triggered liability accounting are resolved. The recorded value of these instruments can fluctuate significantly based on fluctuations in the market value of the issuer’s common stock, as well as in the volatility of the stock price during the term used for observation and the term remaining for the instruments.
 
As of July 13, 2011, upon conversion of the remaining portion of the Notes, the circumstances that triggered liability accounting for the outstanding non-employee options no longer applied and those options had no derivative value at that date.
 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
9.   DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)
 
As Biomoda may not have had sufficient shares authorized to settle all of the Company’s outstanding contracts as of September 15, 2010, this triggered a change in the manner in which the Company accounted for the warrants and stock options held by non-employees. The Company began to account for these warrants and stock options utilizing the liability method. Accordingly, on September 15, 2010, the Company charged the amount of $19,314 to stockholders' equity.

The Company measured the fair value of these instruments as of December 31, 2011, and recorded an unrealized gain for the years ended December 31, 2011 of $5,975.

In accordance with FASB ASC Topic No. 815 warrants, stock options and conversion features which are accounted for as a derivative liability will be revalued each reporting period until the circumstances which triggered liability accounting are resolved. The recorded value of these instruments can fluctuate significantly based on fluctuations in the market value of the issuer’s common stock, as well as in the volatility of the stock price during the term used for observation and the term remaining for the instruments.
 
Activity for derivative instruments for the years ended December 31, 2010 and 2011, respectively, was as follows:

  
  
Balance at
December 31, 2009
    
Initial Valuation of Derivative Liabilities during the Period
    
Increase (Decrease) in Fair Value of Derivative Liability
    
Decrease Credited to Stockholders’ Equity Upon Increase of Authorized Shares
    
Balance at
December 31, 2010
  
Derivative warrant instruments – Series I
  
$ 
-
    
$ 
1,780,583
    
$ 
(1,183,055
)
  
$
-
    
$
597,528
  
Derivative warrant instruments –5-year Warrants issued with Notes
    
-
      
492,518
      
(302,965
)
    
-
      
189,553
  
Derivative instrument – convertible debt
    
-
      
651,368
      
90,221
      
-
      
741,589
  
Derivative warrant instruments – all others
    
-
      
1,549,690
      
(507,772
)
    
(1,041,918)
      
-
  
Derivative option instruments
    
-
      
40,349
      
(18,593
)
    
(15,781)
      
5,975
  
Total
  
$
-
    
$
4,514,508
    
$
(1,922,164
)
  
$
(1,057,699
)
  
$
1,534,645
  
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
 
 
 
9.   DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)


  
  
Balance at
December 31, 2010
    
Initial Valuation of Derivative Liabilities during the Period
    
Increase (Decrease) in Fair Value of Derivative Liability
    
Decrease Credited to Stockholders’ Equity Upon Exercise of Warrants or Conversion of Debt
    
Balance at
December 31, 2011
  
Derivative warrant instruments – Series I
  
$ 
597,528
    
$ 
1,780,583
    
$ 
(537,776
)
  
$
(41,824
)
  
$
17,928
  
Derivative warrant instruments –5-year Warrants issued with Notes
    
189,553
      
492,518
      
(174,750
)
    
-
      
14,803
  
Derivative instrument – convertible debt
    
741,589
      
651,368
      
(659,371
)
    
(82,218
)
    
-
  
Derivative warrant instruments – all others
    
-
      
1,549,690
      
-
      
-
      
-
  
Derivative option instruments
    
5,975
      
40,349
      
(5,975
)
    
-
      
-
  
Total
  
$
1,534,645,
    
$
4,514,508
    
$
(1,377,872
)
  
$
(124,042
)
  
$
32,731
  

The Company did not have any derivative instruments during the year ended December 31, 2010.

10.   FAIR VALUE MEASUREMENTS
 
As defined in FASB ASC Topic No. 820-10 (formerly SFAS 157), fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820-10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1:
  
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. 
     
Level 2:
  
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
     
Level 3:
  
Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.
 

 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
10.   FAIR VALUE MEASUREMENTS (Continued)

As required by FASB ASC Topic No. 820-10 (formerly SFAS 157), financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant instruments was calculated using the binomial lattice valuation model (see above for the assumptions) for the Company’s Series I Warrants, the 5-year Warrants and the conversion feature contained in the Notes, and the Black-Scholes valuation model for all other warrants and non-employee options.

Fair Value on a Recurring Basis
 
The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2011 and 2010:
 
   
Fair Value Measurements at December 31, 2011
  
Description
  
Quoted Prices In Active Markets for
Identical Assets
(Level 1)
    
Significant Other Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
    
Total Carrying Value as of
December 31, 2011
  
Derivative warrant instruments
  
$
-
    
$
-
    
$
32,731
    
$
32,731
  
Derivative option instruments
                    
-
      
-
  
Derivative conversion Note feature
                    
-
      
-
  
Total
  
$
-
    
$
-
    
$
32,731
    
$
32,731
  


   
Fair Value Measurements at December 31, 2010
  
Description
  
Quoted Prices In Active Markets for
Identical Assets
(Level 1)
    
Significant Other Observable Inputs
(Level 2)
    
Significant
Unobservable Inputs
(Level 3)
    
Total Carrying Value as of
December 31, 2011
  
Derivative warrant instruments
  
$
-
    
$
-
    
$
787,081
    
$
787,081
  
Derivative option instruments
                    
5,975
      
5,975
  
Derivative conversion Note feature
                    
741,589
      
741,589
  
Total
  
$
-
    
$
-
    
$
1,534,645
    
$
1,534,647
  
 
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
10.   FAIR VALUE MEASUREMENTS (Continued)

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
 
  
  
Significant Unobservable Inputs 
(Level 3)
Years Ended December 31,
  
   
2011
    
2010
  
Beginning balance
  
$
(1,534,645
) 
  
$
-
  
Total gains (losses)
    
1,377,872
      
1,922,163
  
Settlements
    
124,042 
      
1,057,699
  
Additions
    
-
      
(4,514,508
)
Transfers
    
-
      
-
  
Ending balance
  
$
(32,731
)
  
$
(1,534,645
)
                 
    Change in unrealized gains (losses) included in earnings relating to derivatives still held as of December 31, 2011 and 2010
  
$
124,042
    
$
1,922,163
  

11.  INCOME TAXES

For the years ended December 31, 2011 and 2010, and the period from inception through December 31, 2011, Biomoda had no significant current or deferred net income tax expense. Biomoda has recorded a 100% valuation allowance on all deferred tax assets.

The net deferred income tax asset consists of the following at December 31, 2011 and 2010:
 
     
2011
      
2010
  
Net operating losses
  
$
3,637,000
    
$
3,442,000
  
Deferred income tax liabilities
    
-
      
-
  
Subtotal
    
3,637,000
      
3,442,000
  
Valuation allowance
    
(3,637,000
)
    
(3,442,000
)
Net
  
$
-
    
$
-
  
 
Based upon the net operating losses incurred since inception, management has determined that the deferred tax asset as of December 31, 2011, will likely not be recognized. Consequently, Biomoda has established a valuation allowance against the entire deferred tax asset.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
11. INCOME TAXES (Continued)

As of December 31, 2011, Biomoda had various federal and state net operating loss carry forward of approximately $9,000,000 that have initial carry-forward periods between four and 20 years.

The utilization of some or all of Biomoda's net operating losses may be severely restricted now or in the future by a significant change in ownership as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.

A reconciliation of income taxes computed at the U.S. Federal statutory income tax rate to the provision (benefit) for income taxes for the years ended December 31, 2011 and 2010, is as follows:

   
2011
    
2010
  
U.S. Federal statutory tax at 35%
  
$
(542,000
)
  
$
(887,000
)
State taxes, net of federal benefit
    
-
      
-
  
Permanent differences – primarily stock-based compensation
    
473,000
      
657,000
  
Valuation allowance
    
69,000
      
230,000
  
Provision (benefit) for income taxes
  
$
-
    
$
-
  
 
12. LOSS PER COMMON SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted loss per common share computations for the years ended December 31, 2011 and 2010:

   
2011
    
2010
  
Numerator for basic and diluted loss per common share:
                
Net loss charged to common stockholders
  
$
(230,472
)
  
$
(655,781
)
                 
Denominator for basic and diluted loss per common share:
                
Weighted average number of shares
    
113,304,382
      
88,366,234
  
                 
Basic and diluted loss per common share
  
$
(0.00
)
  
$
(0.01
)
 
Biomoda reported a net loss for the years ended December 31, 2011 and 2010. As a result, shares of common stock issuable upon exercise of convertible debt, stock options and warrants, and, respectively, have been excluded from the calculation of diluted loss per common share for the respective years because the inclusion of such securities would be anti-dilutive.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010

13. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

On December 15, 2008, Biomoda entered into a month-to-month agreement with WESST Enterprise Center for approximately 1,200 square feet of laboratory and office space at $2,700 per month. In November 2010, an additional office was leased for a new total of $3,700 per month. The Company has leased additional office space as needed and had no fixed long-term lease commitments at December 31, 2011.

Total rent expense for the years ended December 31, 2011 and 2010, and for the period from inception through December 31, 2011, was approximately $58,000, $45,000 and $367,000, respectively.

LEGAL MATTERS
 
On April 22, 2009, Biomoda, Advanced Optics Electronics, Inc. (“ADOT”), and Leslie S. Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits. As described below, the Settlement effectively separates Biomoda from ADOT and Robins and cedes control of ADOT to Robins.
 
 
Pursuant to the Settlement, in addition to executing a release in favor of Biomoda, Robins took the following action:
 
(a)  
paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;
(b)  
resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;
(c)  
transferred all shares to the Company of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and
(d)  
agreed not to acquire any Biomoda shares in the future.
 
In addition, on April 22, 2009, our President and current board member, John J. Cousins, resigned as a director and officer of ADOT, and Robins was appointed Chairman, Chief Executive Officer and President of ADOT. Pursuant to the Settlement, ADOT also transferred 1,231,575 Biomoda shares to the Company and released Biomoda from all ADOT claims, including claims related to an alleged promissory note dated May 1, 2002, in the amount of $1,030,748, which was disputed and previously written off by Biomoda as of the year ended December 31, 2008.
 
As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda has won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda.  Biomoda submitted a final statement of damages to the Court in November, 2009.  At the hearing on Aug. 4, 2010, defendant Alvin Robins failed to appear.  The Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda.  Subsequently, in an opinion and memoranda issued on August 4, 2010, the Court allowed defendant Alvin Robins ten days to request further hearing on the matter before the Court and to answer the Biomoda argument for damages. Defendant John Kearns is deceased.  Biomoda has waived the right to pursue damages against Mr. Kearns' estate.
 
In Biomoda, Inc. v. Robins, U.S. Dist. Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, with post-judgment interest, in favor of Biomoda and against Alvin D. Robins. No appeal from the Amended Final Judgment has been filed, and the deadline for doing so has passed. The judgment is therefore final and no longer reviewable on appeal. .  We intend to pursue collection of the judgment.
 
 
BIOMODA, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
 
 
14. SUBSEQUENT EVENTS

In accordance with SFAS 165 (ASC 855-10) the Company reviewed all material events through April 16, 2012.

In January 2012, Biomoda returned a leased flow cytometer to the distributor due to payment default of the leasing agreement.

In February 2012, 2,000,000 Series I Warrants were exercised at a price per share of $0.01 for cash proceeds of $20,000.

In March, 2012, 40,749,600 shares were issued for services to employees and vendors, with a value of approximately $407, 500.  The shares were valued using the stock price on the date of issuance.

In March 2012, 2,800,000 shares were issued to an investor at a price per share of $0.01 for cash proceeds of $28,000.
 
In April 2012, the Company entered into a convertible loan agreement for $250,000.  The Lenders agreed to lend Biomoda $250,000 for a term not to exceed six (6) months.  Biomoda shall repay the Lenders the principal amount of $250,000 plus $45,000 in interest and a loan origination fee and any expense reimbursement at the end of the Term or at an earlier time.  The amount of repayment is fixed at $295.000 which includes the principal amount of $250,000 plus interest and loan origination fee plus any expense reimbursement.  The Lenders shall have the option of receiving a) repayment of $270,000 in cash and 2,500,000 shares of restricted common stock or b) 29,500,000 shares of restricted common stock at an agreed share price of one cent ($0.01) per share.  Lenders also have the right after three months to convert into restricted common shares at a share price of one cent ($0.01) per share for a total of 29,500,000 shares.  Any such conversion must be for the entire loan.  Biomoda has the right to prepay the loan at any time, however the Lenders when notified of Biomoda’s election to prepay will determine in what form whether a) or b) above shall be the form of the repayment.
 
The loan shall be secured by a security interest in the Biomoda United States and European Union Patents and patent rights.  The security interests shall expire upon repayment.
 
Biomoda determined that the convertible note agreement contained a beneficial conversion feature.  As such, the Company has recorded a debt discount for the full amount of the note.  The $295,000 discount will be amortized using the straight-line method over the term of the convertible note.
 
There are no other material subsequent events to report.
 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES
 
As of December 31, 2011, the Company carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. This evaluation was done under the supervision and with the participation of our management, including Biomoda’s President and Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15e), our President and Chief Financial Officer has concluded that as of December 31, 2011, such disclosure controls and procedures were not effective.

Management noted that there were no material weaknesses related to the policies and procedures that:

·  
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

·  
Provide reasonable assurance that the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

·  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

The Company’s material weaknesses exist in its period-end closing procedures and specifically relate to the procedures designed to identify, measure and classify imbedded derivative liabilities arising from complex financial contracts and instruments.

To remedy these material weaknesses, the Company has modified its monthly closing procedures to allow for additional levels of management review to ensure that a detailed review of all financial contracts and instruments occurs on a periodic basis with the objective of identifying, measuring and properly reporting all derivative liabilities at the time of the period-end closing. The Company will also utilize additional resources and possibly outside consultants to assist with the timely and correct accounting for these transactions. Biomoda management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; provide reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on Biomoda’s financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Pursuant to Rule 13a-15d of the Exchange Act, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (1992) and Internal Control Over Financial Reporting Guidance for Smaller Public Companies (2006), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 
 
Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2011.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Controls and Procedures

There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2011, that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.

Limitations on the Effectiveness of Internal Control

The Company's management, including the CEO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, financial reporting misstatements due to error or fraud may occur and not be detected on a timely basis.
  
ITEM 9B. OTHER INFORMATION

On March 21, 2012, Biomoda issued an 8-K Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. On March 19, 2012, the Board of Directors of Biomoda, Inc. (the "Company") elected Timothy Peter Zannes as Vice-President.  Please see full text on the www.sec.gov website.

On January 4, 2011, Biomoda issued an 8-K Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Please see full text on the www.sec.gov website.

On December 29, 2010, the Board of Directors of Biomoda, Inc. (the “Company”) elected Maria Zannes to serve as Chief Executive Officer. Ms. Zannes has been a Director of Biomoda since May 1, 2008, and Chairman of the Board since July 27, 2010.
 
On February 25, 2011, Biomoda issued an 8-K/A to correct the description of the amount of warrants issued from the 8-K filing on March 19, 2010.

On July 25, 2011, Biomoda issued an 8-K Item 1.02  Termination of a Material Definitive Agreement. Please see full text on the www.sec.gov website. This 8-K refers to the fact that, the Purchasers had completed the conversion of the Convertible Notes into shares of common stock.
 
On August 22, 2011, Biomoda issued an 8-K Item 3.02 Unregistered Sales of Equity Securities, Item 3.03 Material Modification to Rights of Security Holders, Item 5.01 Changes in Control of Registrant, Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
 
Please see full text on the www.sec.gov website.  This 8-K refers to the establishment of a Series of Preferred Stock of the Company, and that 100 shares of preferred stock had been issued.

On September 16, 2011, Biomoda issued an 8-K Item 5.03 Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year, and Item 5.07 Submission of Matters to a Vote of Security Holders.  This 8-K refers to the annual meeting of stockholders at which the Company’s stockholders approved all three proposals presented. Please see full text on the www.sec.gov website.

On September 28, 2011, Biomoda issued an S-1 Registration Statement to register up to 206,387,725 shares of our common stock, including 203,887,725 shares of common stock issuable upon exercise of outstanding common stock purchase warrants currently exercisable at $0.01 per share.  This S-1 registration statement was declared effective on October 11, 2011.


 
 
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following sets forth information, as of December 31, 2011, concerning the Company’s directors and executive officers:

Name
  
Age
  
Position
  
Since
Maria Zannes
  
56
  
Chairman, Chief Executive Officer, Director
  
July 2009
John J. Cousins
  
55
  
President, Treasurer, Director, Chief Financial Officer and Controller
  
April 2002
David Lambros
  
58
  
Director
  
May 2008
Lewis White
  
59
  
Director
  
May 2008
Timothy Peter Zannes
  
60
  
Corporate Secretary, Corporate Counsel
  
November 2007
 
The Company elects its board of directors at meetings of shareholders, and directors hold office until the next meeting of shareholders following their election. In the event of a vacancy due to resignation, removal or death, the remaining duly elected directors may fill such vacancy until the next meeting of the shareholders. Officers of the Company are elected by the board of directors which shall at a minimum elect a president, a secretary and a treasurer to hold office for one year and thereafter until their successors are elected. The board of directors may, from time to time, by resolution, appoint one or more vice presidents, assistant secretaries, assistant treasurers and transfer agents of the Company as it may deem advisable, prescribe their duties; and fix their compensation.

Maria Zannes is Chief Executive Officer and Chairman of the board of directors. Ms. Zannes has more than 30 years of management experience in business and industry. After serving as President of the Energy Recovery Council, a national waste-to-energy trade group in Washington, D.C., for 10 years, Ms. Zannes began a consulting practice for private clients in the medical, environmental and energy industries. She is a research associate with Columbia University Earth Engineering Center and co-founder of two research centers at Columbia. Ms. Zannes is a director and founder of American Homecoming Foundation, a non-profit organization directed at helping homeless veterans. Previously, she worked as General Manager for ECOS Corporation, a subsidiary of Burlington Environmental, and Project Manager for Wheelabrator Technologies, Inc., a subsidiary of Waste Management. Ms. Zannes began her career as a journalist before joining the office of Congressman Charles Wilson (D-Texas) as legislative aide and press secretary. Ms. Zannes is licensed to practice law in New Mexico and is an inactive member of the Washington State Bar Association. 

John J. Cousins is President, Treasurer, CFO, Controller and Director. Mr. Cousins holds undergraduate degrees from Boston University and the Lowell Institute School at the Massachusetts Institute of Technology and earned an MBA from the Wharton School, University of Pennsylvania. He began his business career as a design engineer for Ampex Corporation, a manufacturer of broadcast and computer equipment, and the American Broadcasting Company television network. He was named vice president of Cimarron Business Development Corporation, a southwest regional merchant and investment banking operation in 1990. In 1996, Mr. Cousins became president of Terra Firm, a business consulting firm. Mr. Cousins is a Director of American Homecoming Foundation, a non-profit organization created to help homeless veterans. Mr. Cousins is also a Director and Vice President of New Mexico Biotechnology and Biomedical Association (NMBio), an affiliate of the national Biotechnology Industry Organization. Mr. Cousins has been President, Treasurer, Controller and a Director of Biomoda since 2002.
 
 
 
David Lambros is a Director. Mr. Lambros was the elected law director of Brook Park, Ohio, and presently serves as the law director of the Village of Valley View and the Village of Kelley’s Island, Ohio. As law director, he serves as the chief legal counsel to cities negotiating with corporations and business, and is an expert in municipal law. Mr. Lambros has practiced law for more than 25 years and served on various boards, including Commerce Exchange Bank and Southwest General Hospital. He presently is a director on the Systems Board at Southwest General Hospital, a multi-million dollar company.

Lewis White is a Director. Mr. White is a major shareholder of Biomoda and serves as director and CEO of New Energies Nebraska, LLC, a subsidiary of Standard Alcohol Company. He has also been a real estate investor, principal of a food services business catering to niche markets and an employee of the State of Nebraska. Mr. White attended the University of Nebraska at Omaha where he majored in Business Administration.

Timothy Peter Zannes is Vice President and General Legal Counsel and Corporate Secretary.  Mr. Zannes holds a law degree from the University of New Mexico, is a member in good standing of the New Mexico Bar and contributes 19 years experience as a lawyer.

Family Relationships

Maria Zannes and David Lambros are cousins. Timothy Peter Zannes, Corporate Secretary and General Legal Counsel, and Maria Zannes are siblings. David Lambros and Timothy Peter Zannes are cousins. There no other family relationships among the directors, officers, or other persons nominated to become such.

Term of Officers

All executive officers are appointed by the board and hold office until the board appoints their successors.

Code of Ethics

For the year ended December 31, 2010, the Company completed and communicated to all employees its written values and ethical standards. Company management actively communicates values and ethical standards during Company-wide meetings. These standards are outlined in the human resources manual completed in December 2010.
 
Audit Committee

Currently the board of directors acts as the audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater-than-ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Sections 16(a) forms they file. To the Company’s knowledge, based solely on the review of copies of such reports furnished to the Company and written representations that no other reports were required and to the best of its knowledge, during the year ended December 31, 2011, the Company complied with all Section 16(a) filing requirements applicable to the Company’s officers, directors and greater than ten percent shareholders.
 
 
 
Involvement in Legal Proceedings

To the best of the Company’s knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
 
In Biomoda, Inc. v. Robins, U.S. Dist. Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, with post-judgment interest, in favor of Biomoda and against Alvin D. Robins. No appeal from the Amended Final Judgment has been filed, and the deadline for doing so has passed. The judgment is therefore final and no longer reviewable on appeal. 
 
ITEM 11. EXECUTIVE COMPENSATION

The following table discloses the compensation earned for services rendered in all capacities by the Company’s executive officers for 2011 and 2010:
 
SUMMARY COMPENSATION TABLE
 
Name and
Principal Position
(a)
  
 Year
(b)
  
Salary
(c)
  
Stock Awards
(d)
  
Option Awards
($)
(e)
  
Non-Equity Incentive Plan Compen-sation
(f)
  
 Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($)
(g)
  
All Other
Compensation
($)
(h)
  
Total
(i)
  
John Cousins,
                                  
President, Director
  
2011
    
$
34,013
    
$
63
                    
$
34,076
  
   
2010
    
$
170,592
    
$
133
                    
$
170,726
  
Maria Zannes,
                                              
Chairman and CEO  
2011
    
$
17,033
    
 
63
                    
$
17,096
  
     2010     $   0     $   133                     $   133  
Timothy Peter Zannes,
                                              
Corporate Secretary
  
2011
    
$
21,635
    
$ 
0
                    
$
21,635
  
    2010     $  129,292     $   759                     $   130,051  
Verrity Gershin*
                                              
   
2010
    
$
78,750
    
$
108
                    
$
78,858
  

 *Verrity Gershin was the former Corporate Secretary of Biomoda and now is the Office Manager.
 
 
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2011
 
No options were awarded in 2011.
 
LONG-TERM COMPENSATION PLANS
 
As of December 31, 2011, there are no long-term incentive or retirement plans.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information concerning the ownership of the Company’s common stock as of December 31, 2011, with respect to: (i) each person known to the Company to be the beneficial owner of more than five percent of the Company’s common stock; (ii) all directors; and (iii) directors and executive officers of the Company as a group. The notes accompanying the information in the table below are necessary for a complete understanding of the figures provided below. As of December 31, 2011, there were 130,314,361 shares of common stock issued and outstanding.

Title of Class
  
 
Name and Address
  
Nature of Beneficial Ownership
  
Amount of Beneficial Ownership
  
 
Percent of class
Common Stock
(no par value)
  
John Cousins (Director / Exec Officer)
609 Broadway NE, Albuquerque, New Mexico, 87102
  
Direct
    
2,860,000
  
2.19
%
                     
Common Stock
(no par value)
  
Lewis White (Director)
609 Broadway NE, Albuquerque, New Mexico, 87102
  
Direct
    
3,971,000
  
3.05
%
                     
 
Common Stock
(no par value)
  
Maria Zannes (Director / Exec Officer)
609 Broadway NE, Albuquerque, New Mexico, 87102
  
Direct
    
708,000
  
.54
%
                     
 
Common Stock
(no par value)
  
David Lambros (Director)
609 Broadway NE, Albuquerque, New Mexico, 87102
  
Direct
    
625,000
  
.48
%
                     
 
Common Stock
   (no par value)
  
Timothy Peter Zannes (Exec Officer/ Corporate Secretary)
609 Broadway NE Albuquerque, New Mexico, 87102
  
Direct
    
600,200
  
.46
%
                     
 
Common Stock
(no par value)
  
All Directors and Officers as a group
  
Direct
    
8,764,200
  
6.73
%
 
There are no agreements, contracts or arrangements that the Company is part of or knows about that would result in a change of control of the Company.
 
 

STOCK OPTIONS
 
  Date
Name
  
Options Outstanding
    
Percent of Options Outstanding
    
Price
  
Expiration
12/1/03
Herbert Whitaker
    
75,000
      
68.95
%
  
$
2.99
  
12/1/13
9/1/05
Stuart Ferguson
    
33,768
      
31.05
%
  
$
0.90
  
9/1/15
       
108,768
      
100
%
          
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

As of December 31, 2011, the Company had advances of approximately $242,000 payable to two of its stockholders. Such advances bore interest at 10% per annum and are due on demand. Management and the Board of Directors are reevaluating the current market trends and terms and expect to reduce such interest rate in 2011. The advances are all due on demand. Interest expense related to such advances for the years ended December 31, 2011 and 2010, and for the period from inception through December 31, 2011, was approximately $13,000, $13,000 and $107,000, respectively.

The Company is in the process of contesting the validity of the two note obligations to these stockholders who were formerly related to the Company. Pending the resolution of this process, the Company has left the obligation on the books and continues to accrue interest in order to show the worst-case scenario in possible payment by the Company. 
 
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed by GBH CPAs, PC for professional services rendered in connection with the audit of our annual consolidated financial statements for the fiscal years ended December 31, 2011 and 2010, were approximately $47,650 and $50,850, respectively.

Audit-Related Fees

Our auditors aggregate fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements were $8,225.

Tax Fees

Our accountants did not bill any fees for tax compliance, tax advice, and tax planning for the fiscal years ended December 31, 2011 and 2010.

All Other Fees

The aggregate fees billed by our auditors for all other non-audit services, such as attending meetings and other miscellaneous financial consulting, for the fiscal years ended December 31, 2011 and 2010, were $0 and $0 respectively.
 
 
 
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits
    
3.1
Articles of Incorporation
  
Incorporated by reference to Exhibit 1 on Form SB-2 filed 6/18/02
3.2
By-Laws
  
Incorporated by reference to Exhibit 2 on Form SB-2 filed 6/18/02
31.1
  
Filed Herewith
31.2
  
Filed Herewith
32.1
  
Filed Herewith
32.2
  
Filed Herewith

 
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
BIOMODA, INC.
  
       
Dated: April 19, 2012
By:
    
   
/s/ Maria Zannes                                       
  
   
Maria Zannes 
Chief Executive Officer  
   
 
/s/ John J. Cousins                                    
  
   
John J. Cousins  
  
   
President and Chief Financial Officer
(Principal Accounting Officer)

 
58